European Journal of Marketing :Trust: current thinking and future research

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ISSN 0309-0566

Volume 41 Number 9/10 2007

European Journal of Marketing Trust: current thinking and future research Guest Editors: David C. Arnott and David Wilson

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European Journal of Marketing

ISSN 0309-0566 Volume 41 Number 9/10 2007

Trust: current thinking and future research Guest Editors David C. Arnott and David Wilson

Access this journal online ______________________________

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Editorial review board___________________________________

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GUEST EDITORIAL Trust – current thinking and future research David C. Arnott _______________________________________________

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The nature of trust in brands: a psychosocial model Richard Elliott and Natalia Yannopoulou ___________________________

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An analysis of antecedents and consequences of trust in a corporate brand Christina Sichtmann ____________________________________________

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Trust and reliance in business relationships Stefanos Mouzas, Stephan Henneberg and Peter Naude´ _______________ 1016

Explaining buyers’ responses to sellers’ violation of trust Sijun Wang and Lenard C. Huff __________________________________ 1033

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CONTENTS

CONTENTS

The impact of psychological contracts on trust and commitment in supplier-distributor relationships

continued

Russel P.J. Kingshott and Anthony Pecotich _________________________ 1053

Trust in buyer-seller relationships: the challenge of environmental (green) adaptation Louise Canning and Stuart Hanmer-Lloyd __________________________ 1073

Trust determinants and outcomes in global B2B services Patricia M. Doney, James M. Barry and Russell Abratt ________________ 1096

Personal characteristics, trust, conflict, and effectiveness in marketing/sales working relationships Graham R. Massey and Philip L. Dawes ____________________________ 1117

Interpersonal trust between marketing and R&D during new product development projects Graham R. Massey and Elias Kyriazis _____________________________ 1146

Role of electronic trust in online retailing: a re-examination of the commitment-trust theory Avinandan Mukherjee and Prithwiraj Nath _________________________ 1173

Research on trust: a bibliography and brief bibliometric analysis of the special issue submissions David C. Arnott _______________________________________________ 1203

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European Journal of Marketing, Vol. 41 No. 9/10, 2007 p. 980 # Emerald Group Publishing Limited 0309-0566

EDITORIAL REVIEW BOARD Professor Nicholas Alexander University of Ulster, Northern Ireland Professor John Balmer University of Brunel, UK Professor Grete Birtwistle Glasgow Caledonian University, UK Professor Bjo¨rn Bjerke Malmo¨ University, Sweden Professor Stephen Brown University of Ulster at Jordanstown, Northern Ireland Prof. Dr Manfred Bruhn University of Basel, Switzerland Professor Tamar Cavusgil Michigan State University, USA Professor Sylvia Chetty Massey University, New Zealand Professor Nicole Coviello University of Auckland, New Zealand Professor David Cravens Texas Christian University, USA Professor Tevfik Dalgic University of Texas at Dallas, USA Dr Ken Deans University of Otago, New Zealand Elena Delgado-Ballester University of Murcia, Spain Professor Adamantios Diamantopoulos Loughborough University, UK Professor Bill Donaldson The Robert Gordon University, Aberdeen, UK Mr John Egan Middlesex University Business School, UK Dr Kim Fam University of Otago, New Zealand Professor Pervez Ghauri Manchester School of Management, UMIST, UK Professor Christina Goulding University of Wolverhampton, UK Professor Kjell Grønhaug Norges Handelshoyskole, Norway Dr Chiquan Guo The University of Texas – Pan American, USA Dr Rob Hamlin University of Otago, New Zealand Professor Lloyd Harris Cardiff Business School, UK Professor Phil Harris University of Otago, New Zealand Professor Graham J. Hooley Aston Business School, UK Professor Ga´bor Hova´nyi Panno´nia UTCA, Hungary Professor Claes Hultman ¨ rebro University, Sweden O Dr La´szlo´ Ka´rpa´ti University of Debrecen, Hungary Professor Erdener Kaynak Pennstate Harrisburg, Pennsylvania, USA Professor David Kirby University of Surrey, UK Professor Philip Kitchen The University of Hull, UK

Professor Simon Knox Cranfield University, UK Professor Raymond LaForge University of Louisville, USA Dr Meredith Lawley University of the Sunshine Coast, Australia Professor Veronica Liljander Swedish School of Economics and Business Administration, Finland Professor Andrew McAuley University of Stirling, UK Dr Rosalind McMullan Auburn University, USA Professor Jan Mattsson Roskilde University, Denmark Professor Bill Merrilees Griffith University, Australia Professor Morgan Miles Georgia Southern University, USA Professor Robert Morgan Cardiff University, UK Professor Luiz Moutinho University of Glasgow Business School, UK Professor Patrick Murphy University of Notre Dame, USA Professor Aron O’Cass The University of Newcastle, Australia Dr Aodheen O’Donnell University of Ulster, UK Dr Tom O’Toole Waterford Institute of Technology, UK Professor Adrian Palmer University of Gloucestershire, UK Professor Paul Patterson University of New South Wales, Australia Professor Nigel Piercy University of Warwick, UK Professor Michael Polonsky Victoria University, Melbourne, Australia Professor Gerard Prendergast Hong Kong Baptist University, Hong Kong Professor Jonathan E. Schroeder University of Exeter, UK Professor Wai Siu Hong Kong Baptist University, Hong Kong Professor Goran Svensson Olso School of Management, Norway Professor Hans Mathias Thjomoe Norwegian School of Management, Norway Professor Peter Turnbull University of Birmingham, UK Professor Caroline Tynan Nottingham University Business School, UK Professor Eduard Urban University of Economics, Czechoslovakia Dr Cleopatra Veloutsou University of Glasgow, Scotland, UK Professor Martin Wetzels Eindhoven University of Technology, The Netherlands Professor Len Tiu Wright De Montfort University, UK Dr Judy Zolkiewski The University of Manchester, UK

The current issue and full text archive of this journal is available at www.emeraldinsight.com/0309-0566.htm

GUEST EDITORIAL

Guest editorial

Trust – current thinking and future research David C. Arnott

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Warwick Business School, University of Warwick, Coventry, UK Abstract Purpose – The primary purpose of this article is to introduce the special issue on trust in marketing and the selected papers. However, it has a secondary objective of acting as a brief introduction to the concept of trust, of highlighting the scope and scale of research into the concept in a range of disciplines, and of stimulating more research in areas identified as still being under-explored. Design/methodology/approach – This is a discursive paper based on analysis and synthesis of trust literature and of submissions to the special issue. Findings – This paper finds that despite a broad spectrum of disciplines that investigate trust, and despite this special issue in the area of marketing, there are still areas open for research into trust in marketing, for example the role of trust in a B2C context, the impact of indirect (referent) experience versus direct experience of levels of trust, and exploring the concept using more interpretivist or phenomenological approaches. Research limitations/implications – The historical synthesis provides researchers new to the field with some foundational literature. For those interested in current thoughts, the discussion provides a synthesis of the areas represented by the paper in this special issue. For those interested in new areas it offers suggestions as to some possibilities. Originality/value – The value of the paper lies in linking the special issue articles to areas of current interest and the identification of under-researched areas of trust in a marketing context. Keywords Trust, Marketing, Research Paper type Viewpoint

Introduction A recently used slogan on a UK supermarket carrier bag reads “Food you can trust”. It is hoped that this is an unnecessary claim and that all “food” from any food retailer can be trusted. But then one thinks of the fugu (puffer fish) vendors in Japan; one tiny slip of the knife, the smallest nick in the fish’s poison sac, and a customer dies of food poisoning. Talk about trust! Trust – a belief in the reliability of a third party, particularly when there is an element of personal risk – lies at the heart of the marketing concept. Any successful relationship, from friendship and marriage to partnerships and business transactions, is dependent to a greater or lesser extent upon the degree of trust between the parties. If marketing is about meeting customer needs, the establishment and management of relationships with customers, and the delivery of promises (either explicit, for example in terms of delivery dates or fitness for purpose of the product; or implicit, for example in branding and positioning), then trust is a major element in the relationship that exists between a company and its customers. And yet, surprisingly, there has been no collected research into trust in a marketing context – hence this special issue.

European Journal of Marketing Vol. 41 No. 9/10, 2007 pp. 981-987 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560710773291

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This in not to say that research on trust does not exist. The earliest works on trust were in the areas of psychology (Deutsch, 1958, on conflict resolution; Rotter, 1967; Zand, 1972, on interpersonal trust) or in sociology (Luhmann, 1979). Management researchers’ interest in the topic only began in the mid-1980s with investigations into the interpersonal relationships between buyers and sellers (most notably Dwyer et al., 1987), but published work on trust was still running at less than five papers per year. This changed with the works of Moorman et al. (1992, 1993) on the trust relationship between businesses and marketing research agencies, of Morgan and Hunt (1994) with their commitment-trust model of relationship marketing, and of McAllister (1995), who categorized trust on two dimensions: (1) the cognitive; and (2) the affective. Incidentally, these last three works might be considered as the foundational works of most subsequent research on trust since they are, by far, the most cited of all works on trust. From the mid-1990s work with a specific interest in trust (defined as the concept being either the primary construct or a major component of the research model investigated) exploded, with the last decade seeing in excess of 50 peer-reviewed works per annum. The internet and e-commerce added considerably to the growth, with numerous articles emanating from information systems and computing researchers and focusing on the link between online or systems security and trust. There was, additionally, considerable growth in the disciplines of general management, organizational behaviour, and business ethics, with numerous articles appearing in each field and with special issues in each (Academy of Management Review, Vol. 23 No. 3, 1998; Journal of Business Ethics, Vol. 8 No. 2, 1998; Organization Studies, Vol. 22 No. 2, 2001) and with various conferences either dedicated to, or having a track on, trust (e.g. World Economic Forum, 2003). The management focus was on the role of trust in buyer-seller relationships and that of OB on the impact of trust on interdepartmental and interpersonal relationships in the work place. The scope and scale of the trust literature might be gauged from a bibliography on trust (compiled by the Guest Editors), which extends to over 700 books, articles and conference papers dedicated to the topic. However, despite this growth, and despite the apparent centrality of trust in marketing and marketing relationships, there is still a dearth of published work on trust in the marketing field. To date, the Journal of Marketing has published just 11 articles with trust as the focus, Industrial Marketing Management nine articles, EJM nine articles (and was one of the early entrants into the discussion with the publication of Young and Wilkinson, 1989), Journal of Marketing Management seven articles and Psychology & Marketing just four articles. Other peer-reviewed marketing-oriented journals have, at most, three trust-focused articles, and almost all appear within the last decade. In terms of volume, most of the published work on trust in the marketing field appears to be in the form of conference papers, with all major marketing conferences over the last ten years having at least one paper on trust, but, to the Guest Editors’ knowledge, not one marketing conference has had a track dedicated to the concept of trust (the OB, management and e-commerce disciplines have held entire conferences or workshops on trust).

The trust concept By way of an introduction to this special issue, it may be worth setting the context in which the papers are set by briefly exploring the trust construct. In today’s world we cannot or do not wish to do everything for ourselves and so we must trust others. Modern societies are specialized, time-poor, consumption-oriented, and legally constrained, and hence we must rely on and trust others, particularly businesses, to manufacture and deliver the food, the energy, the goods and the services we need for survival. This need to trust extends to the business and market interactions throughout the supply and value chain because at each stage the interactions are people to people. But surely trust is a simple construct? Either you trust someone or you do not! Not quite. As evident in the papers in this special issue, like most social constructs trust is complex and multi-dimensional. Webster’s Dictionary devotes nine column inches of eight-point type to the term and offers 17 possible definitions. That said, a distilled definition might best be expressed, as stated earlier, as a belief in the reliability of another, particularly when involving an element of personal risk. Early research (Zand, 1972) suggests three underlying determinants of trust: (1) integrity; (2) benevolence; and (3) credibility. The trusting party must believe that the trusted party is able to deliver on the promise and will not deliberately take unfair advantage of the situation. These three have been modified and reclassified by McAllister (1995) as cognitive trust (based on reasoning) and affective trust (based on underlying feelings). Other researchers focus on the outcomes and consequences of trust, while yet others explore the interaction between the trusting parties. The papers in this special issue explore or expand on these ideas. In 2002 a survey taken for the World Economic Forum conference showed that half of all respondents expressed “little or no trust” in either global companies or national businesses. Trust (or lack of it) is international. Trust research suggests that high-trust business relationships lead to more profits, customer satisfaction and flexibility, but business relationships are in a constant state of flux from uncertainty, complexity, specialisation, information barriers, growth, alliances and mergers, globalisation, multiculturalism, litigation, and so on, offering wide scope for trust research set in a global or cross cultural context. The spectrum of papers within this special issue is drawn from across the globe and offer samples of research from the Americas, Europe and Australasia as well as papers that specifically address cross-border research (see the paper by Doney, Barry and Abratt). In an e-business context, businesses must cope with the additional dimension of arms length, technology based relationships with the increased likelihood of opportunism, inappropriate behaviour, identity fraud, masquerading, and collection and misuse of personal data (witness the recent theft of credit card numbers from TK Maxx’s parent company database). Thus, while the user may have every confidence in the company or brand, the nature of e-business adds a new dynamic to trust. Mukherjee and Nath’s paper addresses the current issue of online trust. Building trust is like free mountain climbing – one slip and you’re dead. As Gerald Ratner discovered, years of building a reputation can be brought down with a single

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misplaced comment. But, just as mountain climbers use pitons, carabiners and ropes to break their fall, businesses can use planning and a real customer orientation to maintain trust, even in the face of disasters Trust violation and its impact is discussed in Wang and Huff’s paper. Analysis of the literature suggests that key current trends in trust research are well covered by the papers included in this special issue: . new conceptualizations of trust (see Elliott and Yannopoulou; and Mouzas, Henneberg and Naude); . the antecedents and consequences of trust (see Sichtmann); . interdepartmental relationships (see Massey and Dawes; and Massey and Kyriazis); . interpersonal relationships (see Kingshott and Pecotich); . trust in the brand (see Elliott and Yanopoulou; and Sichtmann); . trust in arms-length, online transactions (see Mukherjee and Nath); . buyer-seller relationships (see Mouzas, Henneberg and Naude; Canning and Hanmer-Lloyd; Wang and Huff; and Kingshott and Pecotich); . channel relationships (see Canning and Hanmer-Lloyd); . trust violation and recovery (see Wang and Huff); and . trust in a service context (see Doney, Barry and Abratt). The paper by Elliott and Yannopolou is conceptual and explores the role of trust in the development of brand usage. It adopts an ethnographic, grounded theory approach and discursive analysis to investigate the symbolic meaning of brands amongst a sample of UK teenagers and builds what they term a social theory of trust. Sichtmann also explores the role of trust in brand development but is an empirical study of consumer trust in corporate level branding in the German mobile phone market, using structural equation modeling to test her model of the antecedent and consequent factors. The paper by Mouzas, Henneberg and Naude is also a conceptual paper adopting a critical analysis of the literature to explore and conceptualize the possible linkage between trust and reliance (the degree to which businesses are tied together by need), thus adding a new angle to the buyer-seller trust literature. Two papers explore the B2B relationships in empirical studies. Wang and Huff adopt an experimental approach randomly presenting one of 16 possible business interaction scenarios to their sample of 390 US-based business professionals in order to explore reactions to violation of trust. One finding from their ANCOVA analysis was an apparent lack of impact of the degree of violation. Kingshott and Pecotich also used an empirical approach to the study of a B2B supplier-distributor in the Australian automotive market. The focus of their paper is the impact of implicit, or psychological, contracts on trust, basing their findings on a mailed questionnaire and on factor analysis and structural equation modelling. Two other papers investigate trust in a B2B marketing context. Canning and Hanmer-Lloyd use an empirical but case-based approach (four cases, 24 interviews) to look at one of the most pressing problems on society, waste disposal, and explore the impact of societal pressures towards environmental responsibility on relationships in the supply chain. Their argument is based on the need for each member of the chain to

take responsibility for recyclability and waste generation as a possible source of conflict and hence a need for and a role for trust. Their study is based in the electronics industry. The study by Doney, Barry and Abratt study looks at trust in service businesses in an international context. Using a sample of users of aviation repair services in 42 countries, the study utilizes a structural equation modelling approach to investigate the impact of trust building behaviours on outcomes. Two papers look at the often cited, but rarely investigated, contentious relationships between the marketing and sales departments (Massey and Dawes) and the marketing and R&D departments (Massey and Kyriazis). Although the papers have one author in common and both use partial least squares analysis, the studies use different samples (one from the UK and one from Australia), explore different relationships, are equally substantive and both found favour with the reviewers – hence their inclusion. The final paper, by Mukherjee and Nath, offers an empirical investigation of trust in an online retailing context by revisiting the foundational work of Morgan and Hunt (1994) and their commitment-trust theory, and offers a marketing contribution to a field (online trust) that is dominated by articles from information systems researchers. Using a large sample (651 respondents) the paper offers strong support for the extension of the commitment-trust theory to an online context and thus its general applicability. Future research on trust Despite the wide spectrum of conceptual and empirical trust-related articles in psychology, sociology, information systems, e-commerce, operations (supply chain) management, organizational behaviour, general management, franchising, distribution channel management, sales management, industrial (B2B) marketing, online marketing, and marketing in general and the range of areas investigated in the 55 articles submitted for consideration for this special issue, there are some areas that still appear to be under-researched or overlooked. Almost all articles treat trust as a simple dyadic between either individuals or a concatenation of individuals’ responses to look at person-to-group or group-to-group trust. There is an assumption that trust is simple spectrum from trust to distrust. However, decisions to trust an organization require multiple judgments. For example, online purchase requires trusting of the brand, the internet merchant and the information system over which the transaction occurs. One aspect may be trusted while others are distrusted. The customer may trust the brand but not trust the channel (e.g. the internet). Plus, a low expectation of an injurious outcome from a transaction does not necessarily mean a high expectation of a beneficial outcome. Building on Lewicki et al. (1998), Arnott (2005) identified at least four trust-distrust (T-D) interactions: (1) the Holy Grail (Hi T Lo D); (2) selectivity (Hi T Hi D); (3) give it a go (Lo T Lo D); and (4) call your lawyer (Lo T Hi D). This interaction of multiple trust decisions is beginning to be explored in the online context but there is still some work to be done.

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A second area for exploration is the relationship between trust built on direct versus indirect experience. If trust were built only on direct experience, this would negate all the literature on the value and importance of word-of-mouth and the services marketing literature that suggests that totally intangible services such as education are reliant on the credibility that purchasers put in the recommendations and assessments of trusted third parties. Thus trust can be built on both direct and indirect experience, provided the indirect source is, itself, trusted. The tendency of people to talk more about disastrous indirect experiences (I ) may conflict with ones own direct experience (D) setting up more trust dilemmas. A þ D= þ I should drive a “tell your friends” response; þD= 2 I may lead you to defend your own views; 2D= þ I may get you to question your own evaluation; and 2D= 2 I means “tell everybody” (see Arnott, 2005). Word of mouth is often seen as an outcome rather than an input into relationship marketing models and so the relative influence of direct versus indirect experience on the development of trust may offer some research dividends. A third area which in part stimulated the Guest Editors’ interest in a special issue on trust is a perceived dearth of investigations into the role trust in B2C marketing. There is some research into the link between trust and branding and the idea of relationship marketing but almost all of the extant marketing related trust literature is either B2B buyer-seller or online retailing oriented. The submissions for the special issue did start to address this shortcoming and some of those papers are included but the submissions were dominated by studies in the B2B relationship arena. That said, a few attempts at conceptualizing the B2C trust problem via literature reviews were submitted but did not find favour with the reviewers. A rather different area that offers scope for more research is a methodological one. All but one of the papers submitted for consideration adopted an essentially positivist approach. The one exception, Elliott and Yannopoulou (accepted for this special issue) was well received by the reviewers and breaks some new methodological ground in the field. With the growth of the interpretivist approach to the study of marketing phenomena, it was surprising, and a little disappointing, that case study, grounded theory or ethnographic studies were not viewed as viable methods of studying what is, in essence, an unmeasurable entity. The Guest Editors would like to publicly thank all the authors who expressed an interest in this special issue and only wish there was more room to include some other contributions. They would also like to offer public thanks to all the reviewers (too numerous to mention) who took the time to offer substantive and useful comments and suggestions to the authors. References Arnott, D.C. (2005), “Conceptualizing trust online”, paper presented at the Academy of Marketing Conference, Dublin, July. Deutsch, M. (1958), “Trust and suspicion”, Conflict Resolution, Vol. 2 No. 4, pp. 265-79. Dwyer, F.R., Schurr, P.H. and Oh, S. (1987), “Developing buyer-seller relationships”, Journal of Marketing, Vol. 51 No. 2, pp. 11-27. Lewicki, R.J., McAllister, D.J. and Bies, R.J. (1998), “Trust and distrust: new relationships and realities”, Academy of Management Review, Vol. 23 No. 3, pp. 438-58. Luhmann, N. (1979), Trust and Power, Wiley, Chichester.

McAllister, D.J. (1995), “Affect- and cognition-based trust as foundations for interpersonal cooperation in organizations”, Academy of Management Journal, Vol. 38 No. 1, pp. 24-59. Moorman, C., Deshpande´, R. and Zaltman, G. (1993), “Factors affecting trust in market research relationships”, Journal of Marketing, Vol. 57, pp. 81-101. Moorman, C., Zaltman, G. and Deshpande´, R. (1992), “Relationships between providers and users of market research: the dynamics of trust within and between organizations”, Journal of Marketing Research, Vol. 29, August, pp. 314-28. Morgan, R.M. and Hunt, S.D. (1994), “The commitment-trust theory of relationship marketing”, Journal of Marketing, Vol. 58, July, pp. 20-38. Rotter, J.B. (1967), “A new scale for the measurement of interpersonal trust”, American Psychologist, Vol. 35, pp. 651-5. Young, L. and Wilkinson, I. (1989), “The role of trust and cooperation in marketing channels: a preliminary study”, European Journal of Marketing, Vol. 23 No. 2, pp. 109-22. Zand, D.E. (1972), “Trust and managerial problem solving”, Administrative Science Quarterly, Vol. 17, pp. 229-3 9. About the Guest Editors David C. Arnott is a geology graduate who spent 12 years with an international oil-industry service company, the last few in management and marketing, before entering academia. After an MBA (Dean’s List) and PhD from Manchester Business School, David joined Warwick in 1993. His background in the marketing of a technology-based service still drives his research interests, which are currently focused on internet marketing communications, e-business, and the development of trust. He has published works in a wide range of marketing and management journals and at numerous conferences. He is co-editor of Marketing Communications Classics (Thomson Learning, 2000). His teaching covers marketing, marketing communications, and research methods on the undergraduate, postgraduate and executive programmes offered at Warwick. He is also an award-winning woodcarver. David C. Arnott is the corresponding author and can be contacted at: [email protected] David Wilson is Professor of Strategy and Organisation at the University of Warwick. He is Deputy Dean of Warwick Business School. He was Chairman of the British Academy of Management (1994-1997), was elected a Fellow of the Academy in 1994, and is listed in Who’s Who in Social Science. He was Chairman of the scholarly society, the European Group for Organisation Studies (2003-2006) and Editor-in-Chief of the journal Organization Studies (1999-2003). His research interests include strategic decision-making, uncertainty and performance. He is the author of nine books and over 60 journal articles.

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The current issue and full text archive of this journal is available at www.emeraldinsight.com/0309-0566.htm

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The nature of trust in brands: a psychosocial model Richard Elliott University of Bath, Bath, UK, and

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Natalia Yannopoulou University of Warwick, Coventry, UK

Received November 2005 Revised November 2006 Accepted March 2007

Abstract Purpose – The paper seeks to explore empirically the lived experience of trust in consumer brands and to develop a model focusing on functional and symbolic brands. Design/methodology/approach – The paper presents an exploratory, grounded theory approach and the study conducted in-depth interviews. Findings – The findings reveal that when consumers are facing buying choices of functional brands that do not involve much risk and the price is low, familiarity is sufficient for their action. When risk and price levels increase, consumers seek a safe purchase choice regarding functional brands through confidence and dependability, while in the case of symbolic brands consumers have to trust the brand in order to make a purchase choice. Research limitations/implications – By exploring the concept of trust within the consumer domain and in particular in relation to functional and symbolic brands, this study offers insights into an area that has received noticeably limited research up to today. Furthermore the development of the psychosocial model of trust in brands offers opportunities to theoreticians for further research regarding the factors that influence trust in each stage, as well as ways to restore or transfer trust when needed. Practical implications – The study presents a tool to marketing practitioners, which will assist them in building and preserving long-term trusting customer relationships. Originality/value – The value of our research lies in the development of a psychosocial model of trust in brands by drawing on both social theory and on the psychology of human relationships. Keywords Trust, Brands, Social theories, Psychology Paper type Research paper

European Journal of Marketing Vol. 41 No. 9/10, 2007 pp. 988-998 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560710773309

“The ultimate goal of marketing is to generate an intense bond between the consumer and the brand, and the main ingredient of this bond is trust” (Hiscock, 2001), but trust is an elusive concept. A wide variety of conceptualizations have resulted “in a confusing potpourri of definitions applied to a host of units and level of analysis” (Shapiro, 1987). For Deutsch (1958), trust is a person’s willingness to be dependent on another party in the belief that the party will not intentionally disappoint them. Dwyer and Oh (1987) maintain that “trust refers to a party’s expectation that another desires coordination, will fulfill its obligations, and will pull its weight in the relationship.” Bagozzi (1975) sees trust as the degree of perceived validity in the statements or actions of one’s partner in a relationship. Shapiro (1987) defines trust as a social relationship in which principals invest resources, authority, or responsibility in another to act on their behalf for some uncertain future return, while Powell (1990) views trust as cooperation that emerges from mutual interests with behavior standards that no individual can determine alone. Ring and Van de Ven (1994) interpret trust as faith in the moral

integrity or goodwill of others, and Gulati (1995) defines trust a type of expectation that alleviates the fear that one’s partner will act opportunistically. For Gro¨nroos (1990), trust is cooperation or commitment to a mutual cause. Drawing on both social theory and on the psychology of human relationships, this paper makes a key distinction between the concepts of familiarity, confidence and trust, and emphasises the process through which trust develops over time. We then explore empirically the lived experience of trust in brands and develop a psychosocial model of trust in brands. A social theory of trust A sociological theory of trust is proposed by Luhmann (1979), who argues that there are three modes of asserting expectations about the future based on personal experiences and cultural meaning systems: (1) familiarity; (2) confidence; and (3) trust. Familiarity is a precondition of trust: “Trust is only possible in a familiar world, it needs history as a reliable background” (Luhmann, 1979, p. 20). But trust is required only in situations of high perceived risk; at other times confidence or mere familiarity will suffice for action to ensue. “One who trusts takes cognizance of the possibility of excessive harm arising from the selectivity of others’ actions” and “a fundamental condition of trust is that it must be possible for the partner to abuse the trust and that the partner must have a considerable interest in doing so” (Luhmann, 1979, p. 24). In order to relate the active investment of trust to expectations about the future, Mo¨llering (2001) argues that a further element is required to enable the proverbial “leap of trust”, and this is “suspension”. Suspension is the mechanism of “bracketing the unknowable”, thus making expectations of the future “momentarily certain”. Translating this approach to consumer brands, when faced with purchase decisions involving low levels of perceived risk, familiarity (which is a binary division as things are either familiar or they are unfamiliar) will suffice for purchase. At higher levels of perceived risk, confidence is required and this is a mix of cognitive and emotional perceptions, largely based on experience. At high levels of perceived risk trust becomes necessary for purchase to occur and this involves emotional judgments rather than cognitions, and for suspension of fear of the unknowable. With repetition over time, risk perceptions reduce and trust reverts to confidence. This is illustrated graphically in Figure 1. Risk and brands Some research in marketing has focused on the strategies developed by consumers to reduce risks by using well-known brands (Ring et al., 1980), as branding provides guarantees about quality and security (Aaker, 1991) and trust is seen as a vital component for the brand to build a lasting relationship with consumers. Thus, a strong brand is a safe place for consumers because it enables them to better visualize and understand the offer and face up with the uncertainty and perceived risk associated with buying and consuming a product.

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Figure 1. A social theory of trust

Fournier (1998) refers to the concept of brand relationship quality and provides a framework for characterizing and better understanding the types of relationships consumers form with brands based on the assumption that the brand is viewed as a contributing relationship partner with regard to the consumer. In other words, the brand is considered as an active member of the relationship through the activities of the manager that administrates it, rather than as a passive object. Consequently, what matters in the building of brand relationships is not simply what managers intend for them, or what brand images contain in the culture (Solomon, 1983), but what consumers do with brands to add meaning in their lives, as “consumers do not choose brands, they choose lives” (Fournier, 1998). Consumers may also assign personality qualities to inanimate brand objects and think about brands as if they were human characters (Levy, 1985), which lead to the observation that the greater the congruity between the human characteristics that consistently and distinctively describe an individual’s actual or ideal self and those that describe a brand, the greater the preference for the brand (Malhotra, 1988). Brand personality is defined as “the set of human characteristics associated with a brand” (Aaker, 1997) and research has examined the way the personality of a brand enables a consumer to express his own self, an ideal self, or numerous possible dimensions of the self through the use of a brand (Belk, 1988; Kleine et al., 1993). Hence, a dyadic relationship exists between consumers and brands and, as a consequence, trust is needed in order to enable both parties to maintain and preferably develop this relationship by eliminating the perceived uncertainty and risk that are involved in consumers’ buying behavior. Trust in human relationships Psychological theory allows us to further model how trust in brands develops over time with experience by analogy with the way that we develop trust within human relationships. Trust in people evolves out of past experiences and prior interactions and develops in stages moving from predictability, to dependability, to trust and eventually sometimes to faith (Rempel et al., 1985). This represents a hierarchy of emotional involvement which reaches trust when people make an emotional involvement in another person. The basic requirements for predictability are some experience of consistency of behavior from which we can build a knowledge base. Dependability requires further

experience and involves a move away from specific behaviors to a more generalised set of beliefs which are invested in the person. This move is likely to depend heavily on the accumulation of evidence from a limited and diagnostic set of experiences involving risk and personal vulnerability. Trust requires a move from reliance on rational cognitions to reliance on emotion and sentiment and a developing intimacy, which leads to an investment of emotion in the person (see Figure 2).

The nature of trust in brands

991 The lived experience of trust in brands and its betrayal In the social as well as physical sciences, many phenomena are most salient when they are in the process of change. Likewise, it is when relationships are vulnerable that trust is likely to be in a process of transition. Therefore, the most opportune time to examine trust may occur when stress and conflict have created a situation where confidence in the other is an issue (Rempel et al., 1985). Trust is unstable by its nature, and Luhmann (1979) maintains that the secure expectations that have been developed when one trusts in most cases collapse at the first disappointment, and as a result the relationship changes as trust decreases or is being eliminated. Garfinkel (1967) demonstrates in a series of experiments that when trust is betrayed, people become uncomfortable, bewildered, angry. This leads us to focus on consumers’ experiences where a problem had arisen or when consumers were dissatisfied by their interaction with a particular brand. More specifically, we explore the way consumers are influenced by risk perceptions and draw on credibility, dependability and trust when making purchasing decisions in relation to both functional and symbolic brands (Park et al., 1986). We also explore how they felt when their trust was betrayed. An exploratory grounded theory study As it is a methodology that was specifically designed for the generation of theory, we chose an interpretivist grounded theory approach: The procedures of grounded theory are designed to develop a well integrated set of concepts that provide a thorough theoretical explanation of social phenomena under study. A grounded theory should explain as well as describe. It may also implicitly give some degree of predictability, but only with regard to specific conditions [. . .] Grounded theory seeks not only to uncover relevant conditions, but also to determine how the actors respond to changing conditions and to the consequences of their actions [. . .] The data collection procedures involve interviews and observations as well as other sources (Corbin and Strauss, 1990, p. 5).

We conducted 14 in-depth interviews of an average duration of one hour, with seven female and seven male respondents between the ages of 25 and 40 years old. The “theoretical” or purposive sampling criterion, “that is sampling for theory construction,

Figure 2. The dynamics of personal trust

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not for representativeness of a given population” (Charmaz, 1995, p. 28), was that they should have had disappointing experiences with functional or symbolic brands. We started our analysis by conducting microanalysis – that is “the detailed line-by-line analysis necessary at the beginning of a study to generate initial categories, with their properties and dimensions, and to suggest relationships among categories” (Strauss and Corbin, 1998, p. 57) – in order to examine what assumptions about our data we are taking for granted and to ensure analytic distance. Throughout our analysis we conceptualized and classified events, acts and outcomes. The categories that emerged, along with their relationships, were the foundations for our developing theory. We then proceeded to focused coding with the aim of creating and trying out categories, which intended to be as conceptual as possible in order to capture our data (Charmaz, 1995). More specifically, our analysis included the following steps (Strauss and Corbin, 1997; Morse, 1994): (1) studying the difference in buying behavior between functional and symbolic brands in relation to risk; (2) exploring the change in consumer behavior and brand perception when a problem with a trusted brand occurs; (3) conducting further interviews to refine our findings; and (4) incorporating theoretical models with the findings of our interviews into a proposed psycho-social model of trust in brands. Excerpts from the transcripts have been organized around our central explanatory concept of lived experience of trust in consumer brands and are presented below to illustrate the findings. Risk and functional brands When consumers are facing buying choices of functional brands that do not involve much risk and the price is low, familiarity is sufficient for their action. In this case, predictability and credibility leads them to an easy choice of brand. Hazel: I wanted to buy a light for my desk. I immediately though of Argos, I knew they would have lights, I had been there before and they have very good prices. That was more than enough, besides it was just a light. Nora: Every time I move to another place and have to get let’s say a land-line or internet connection, I will immediately think of BT. I never cared to ask around. BT is well known, their pricing strategy seems satisfactory to me and even though their service is not that great, I trust them. I just do. With BT I don’t have to worry. They make me feel secure, confident about my choice.

When risk and price levels increase, consumers seek a safe purchase choice regarding functional brands through confidence and dependability. I: How many printers did you have before buying this one? Nodas: Well, maybe 7 or 8 printers. I: And which brand were they? Nodas: Well I used to have an Epson perhaps at the beginning but then I switched to Hewlett Packard, they were all Hewlett Packard after that first one.

I: So what is your perception of the brand? Nodas: It’s reliable, it’s good, it’s compatible, you can trust it. I think the thing I have is I don’t have second thoughts about, I mean I never say maybe this will break down, it has never happened at a critical moment so I do trust Hewlett Packard.

Risk and symbolic brands When discussing symbolic brands we notice that trust appears and moreover becomes significant to consumer behavior. In this case the perceptions of purchase risk, as well as the price level are notably high, and as a result symbolic brands have to inspire trust to consumers in order to be preferred. Nick: I am very particular when it comes to watches. I am a guy you see, we don’t have lots of accessories, and the kind of watch once wears is one of the few things that gets noticed by people. So I do believe that having a good watch is essential. I bought one last year, the one I wanted to buy for some time now, but couldn’t afford it until recently. I: What brand is it? Nick: Rolex, of course! You can’t do better than that. It is quite expensive but you can relay on it getting the message across. It’s a symbol of power and success and everybody knows it . . . Roland: I like BMW cars because usually they are good quality and BMW is a brand you can trust throughout time [. . .] Apart from ’89 we’ve always had a BMW at home. We also had other brands besides but there was always a BMW, now we’ve got two, the old one my sister’s driving and another one.

Furthermore, trust is a dynamic variable and symbolic brands need to develop perceptions of consumer-brand intimacy and emotional investment in order to be perceived as trustworthy brand choices within markets of high perceived risk and price levels. Martin: The thing is with my car. I had a Jeep Grand Cherokee which was a sports utility vehicle 6 years ago I think. Before I purchased the vehicle I had done an extensive amount of research on the car because first of all it’s not cheap, secondly because it was almost like a dream, a dream car for me [. . .] Jeep is a legendary brand name, it was commissioned in the Second World War. It has like excellent quality, design, power, makes you feel great, like being someone very special when you are behind the wheel.

The betrayal of trust Luhmann (1979) maintains that trust is unstable by its nature and that the secure expectations that have been developed when one trusts, in most cases collapse at the first disappointment and as a result the relationship changes as trust decreases or is being eliminated. When consumers felt disappointed by a brand they trusted, they became angry and upset: Roland: I felt very annoyed actually, obviously. Ilias: I was very angry. Mike: Frustrated, pissed off. Claire: I was extremely hurt and upset.

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When trust is betrayed most respondents changed their perception of the brand and trust in it decreased dramatically or was eliminated: Martin: No, no, never will I buy again. Actually not even am I not going to buy a Chrysler, I’ll tell other people not to buy a Chrysler and if I see some of my friends driving a Chrysler I’ll laugh at them. Because with my own bad experience I just don’t trust the brand any more, period.

However, there were occasions when even though respondents have had a bad and disappointing experience with a brand they trusted, they would continue to trust the brand and be willing to buy it again: I: Has this frustrating experience influenced your perception of Sony? Martin: A bit but not a whole lot, not a whole lot because Sony do have a very strong marketing campaign. They get you hooked on the stuff. I am already thinking of buying their new Walkman, it’s so so cool.

In some cases, trust has not been eliminated or even been decreased, on the contrary it has been tested and survived: I: And this constant problem you had with your car not responding for a while, from time to time, didn’t it change your perception of the brand? Nodas: Well no, actually no because I felt that it was like, in terms of fundamentals the car was fine, for me it was reliable. You can’t expect everything from a product. It was reliable, it was nice, it was practical, so that was not a reason for me to say Volkswagen Polo is not a good brand. On the contrary I will definitely consider buying a Volkswagen car again. I mean why not? Of course you are stressed when this happens but I think it was very important for me the fact that the dealer was really supporting me so I had the feeling that even if something goes wrong I have someone to talk to about it.

The transfer of trust from person to brand There is some evidence that it is possible for trust to be transferred to a brand not from our own experience but through recommendations of people who belong to our close social environment, such as family and friends: Roland: . . . it gave me sufficient confidence to buy this laptop knowing that my sister hadn‘t had any problems with the brand. Heather: Oil of Ulay moisturizer is a product that my mum was always very loyal to and she’s bought it all her life and she always used to say to me, this is the best thing for you to buy, so I bought it and I used it [. . .] for five years and I always just thought that it was the right thing to be using. Hazel: I tend to listen to my friends’ advice. If they have any bad experience about anything, when I need to make a purchase I would pay attention to that. For example, like a computer, a laptop, some friends told me there is a flaw in which brand, I can’t really remember, but anyway in a specific brand and when I look into that product category I would avoid buying, not the brand but probably the model. Because for a laptop sometimes the flaw would just occur in different models but not necessarily because of the brand. So if I know that some models are not reliable, it doesn’t matter how cheap the price is I wouldn’t go for it because I don’t want to give myself a hard time. I: So you get information from your friends when considering buying something?

Hazel: Yes. Yes I would ask around. I: What if you already know this brand or have another product of this brand, would you still ask around?

The nature of trust in brands

Hazel: I still ask around. Aristea: I wanted to buy a new desktop and my brother suggested Sony. I trust my brother so I trust his recommendations, every time I ask him about a brand especially when it is a technology related brand, I end up buying what he suggests even though I might be talking and discussing it with many other people, friends. I always buy what he says, I totally trust him. I: Have you ever had a disappointing experience from any product or brand he had suggested you to buy? Aristea: Well, the Sony computer, it has caused me so much inconvenience and created me so many problems. It has a very difficult software which I can’t use, so many multimedia options which even though I watch movies, and download and listen to music and everything through my computer don’t need all these programs and they take so much space. Oh, for the past month it shuts down as I am working, there is something very wrong with it and I am afraid it might crushes down at some point and would not be able to switch it on again and lose all my stuff. I am really bad in keeping back ups. Anyway, lots of problems. I didn’t expect it to be like that and I have had Sony products before, mobile phones and others, never had a problem, I liked them a lot and they are suppose to be good quality and very reliable. I: So it turned out that your brother’s recommendation was not the best choice? Aristea: No, no, I think there is something wrong with this specific one, if I send it for repair it will be ok, well I hope so. I still think it’s a great computer and love the big screen it has and is fast and reliable. I just think I was unlucky. I: You still consider it reliable besides all the problems you have had? Aristea: Yes, I do. It is, Sony it is very reliable. Maybe bit more complicated than I expected but yes reliable.

Hence, when we trust the person, then we will may transfer that trust to the brand or product that they recommend. A psychosocial model of brand trust Having viewed our data afresh, again and again and developed new ideas throughout our analysis, as “grounded theory offers a set of flexible strategies, not rigid prescriptions” (Charmaz, 2000, p. 513) we unfolded our findings in the above set of interrelated concepts, which reduced data from our 14 interviews into concepts and sets of relational statements that can be used to explain the lived experience of trust in consumer brands. Having integrated the above major categories that have emerged from our exploratory study with the theoretical models discussed earlier, we concluded with the formation of a larger theoretical scheme leading our research findings to take the form of theory through an integrative model of trust and consumer brands. The concept of trust is particularly relevant to symbolic brands, with high involvement due to high perceptions of purchase risk. Functional brands, at the lowest level of perceived risk if they are very familiar, provide an easy choice based on predictability and credibility. With increased risk functional brands provide a safe choice through confidence which allows consumers to depend on them. Symbolic brands in markets with high perceived risk need to provide trust which is achieved

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through developing perceptions of consumer-brand intimacy and emotional investment (see Figure 3). Some implications for brand strategy Consistency of experience As a brand is built over time, before confidence or trust can be developed consumers need repeated experiences with the brand so as to build beliefs about its predictability and dependability. This applies to any type of interaction with the brand, from the actual product or service experience, the briefest communication with a company’s representative, a glance at a brand symbol, to the brand’s communication approach. Thus consistency in all aspects of the brand is essential in any brand strategy. Reassurance As levels of involvement rise, consumers cross into an emotional domain when an easy choice becomes a safe choice. The difference is due to increasing levels of risk, both functional and symbolic. As risk increases, a consumer choice has to be more than just easy, and the brand needs to develop a relationship of confidence with the brand, so that the consumer can depend on it. This calls for marketing communications that emphasise reassurance. Storytelling Developing perceptions of trust in symbolic brands involves the development of a consumer-brand relationship based largely on personal experience with the brand. In particular, perceptions of intimacy are required before the consumer will make an emotional investment in the brand and these depend crucially on the brand demonstrating it cares about the consumer’s experience with the brand. This requires the brand to engage in two-way communications with consumers to build a sense of intimacy, and recent research (Escalas, 2004) suggests that a key element may involve marketing communications that “tell a story” that the consumer can use to interpret their own lives.

Figure 3. A psychosocial model of brand trust

References Aaker, D.A. (1991), Managing Brand Equity: Capitalizing on the Value of a Brand Name, Free Press, New York, NY. Aaker, J. (1997), “Dimensions of brand personality”, Journal of Marketing Research, Vol. 34 No. 3, pp. 347-57. Bagozzi, R. (1975), “Marketing as exchange”, Journal of Marketing, Vol. 39 No. 4, pp. 32-9. Belk, R. (1988), “Possessions and the extended self”, Journal of Consumer Research, Vol. 15 No. 2, pp. 139-68. Charmaz, K. (1995), “Grounded theory”, in Smith, J.A., Harre, R. and Langenhove, L.V. (Eds), Rethinking Methods in Psychology, Sage Publications, London. Charmaz, K. (2000), “Grounded theory: objectivist and constructivist methods”, in Denzin, N. and Lincoln, Y.S. (Eds), Handbook of Qualitative Research, Sage Publications, Thousand Oaks, CA. Corbin, J. and Strauss, A. (1990), “Grounded theory research: procedures, canons, and evaluative criteria”, Qualitative Sociology, Vol. 13 No. 1, pp. 3-21. Deutsch, M. (1958), “Trust and suspicion”, Journal of Conflict Resolution, Vol. 2 No. 4, pp. 265-7. Dwyer, F.R. and Oh, S. (1987), “Output sector munificence effects on the internal political economy of marketing channels”, Journal of Marketing Research, Vol. 24 No. 4, pp. 347-58. Escalas, J. (2004), “Narrative processing: building consumer connections to brands”, Journal of Consumer Psychology, Vol. 14, pp. 168-80. Fournier, S. (1998), “Consumers and their brands: developing relationship theory in consumer research”, Journal of Consumer Research, Vol. 24 No. 4, pp. 343-73. Garfinkel, H. (1967), Studies in Ethnomethodology, Prentice-Hall, Englewood Cliffs, NJ. Gro¨nroos, C. (1990), “Relationship approach to marketing in service contexts: the marketing organizational interface”, Journal of Business Research, Vol. 20 No. 1, pp. 3-11. Gulati, R. (1995), “Does familiarity breed trust? the implications of repeated ties for contractual choice in alliances”, Academy of Management Journal, Vol. 38 No. 1, pp. 85-112. Hiscock, J. (2001), “Most trusted brands”, Marketing, March, pp. 32-3. Kleine, R.E., Kleine, S.S. and Kerman, J.B. (1993), “Mundane consumption and the self: a social-identity perspective”, Journal of Consumer Psychology, Vol. 2 No. 3, pp. 209-27. Levy, S.J. (1985), “Dreams, fairy tales, animals, and cars”, Psychology and Marketing, Vol. 2 No. 2, pp. 67-81. Luhmann, N. (1979), Trust and Power, Wiley, Chichester. Malhotra, N.K. (1988), “Self concept and product choice: an integrated perspective”, Journal of Economic Psychology, Vol. 9 No. 1, pp. 1-28. Mitchell, V.W. (1999), “Consumer perceived risk: conceptualisations and models”, European Journal of Marketing, Vol. 33 Nos 1/2, pp. 163-95. Mo¨llering, G. (2001), “The nature of trust: from Georg Simmel to a theory of expectation, interpretation and suspension”, Sociology, Vol. 35 No. 2, pp. 403-20. Morse, J.M. (1994), “Emerging from the data: the cognitive process analysis in qualitative research”, in Morse, J.M. (Ed.), Critical Issues in Qualitative Research Methods, Sage Publications, Thousand Oaks, CA. Park, W., Jaworski, B. and MacInnis, D. (1986), “Strategic brand concept-image management”, Journal of Marketing, Vol. 50 No. 4, pp. 135-45. Powell, W.W. (1990), “Neither market nor hierarchy: network forms of organizations”, Research in Organizational Behavior, Vol. 12, pp. 295-336. Rempel, J., Holmes, J. and Zanna, M. (1985), “Trust in close relationships”, Journal of Personality and Social Psychology, Vol. 49 No. 1, pp. 95-112.

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Ring, A., Schriber, M. and Horton, R.L. (1980), “Some effects of perceived risk on consumer information processing”, Journal of Academy of Marketing Science, Vol. 8 No. 3, pp. 255-63. Ring, P.S. and Van de Ven, A. (1994), “Development processes of cooperative interorganizational relationships”, Academy of Management Review, Vol. 19, pp. 90-118. Shapiro, S.P. (1987), “The social control of impersonal trust”, American Journal of Sociology, Vol. 93, pp. 623-58. Solomon, M.R. (1983), “The role of products as social stimuli: a symbolic interactionist perspective”, Journal of Consumer Research, Vol. 10 No. 3, pp. 319-29. Strauss, A. and Corbin, J. (1997), Grounded Theory in Practice, Sage Publications, Thousand Oaks, CA. Strauss, A. and Corbin, J. (1998), Basics of Qualitative Research, Sage Publications, Thousand Oaks, CA. Further reading Mayer, R.C., Davis, J. and Schoorman, D. (1995), “An integrative model of organizational trust”, Academy of Management Review, Vol. 20 No. 3, pp. 709-34. Mitchell, P., Reast, J. and Lynch, J. (1998), “Exploring the foundations of trust”, Journal of Marketing Management, Vol. 14, pp. 159-72. Morgan, R.M. and Hunt, S.D. (1994), “The commitment-trust theory of relationship marketing”, Journal of Marketing, Vol. 58 No. 3, pp. 20-38. Rotter, J. (1980), “Interpersonal trust, trustworthiness, and gullibility”, American Psychologist, Vol. 35, pp. 1-17. Schurr, P. and Ozanne, J.L. (1985), “Influences on exchange processes: buyers’ preconceptions of a seller’s trustworthiness and bargaining toughness”, Journal of Consumer Research, Vol. 11 No. 4, pp. 939-53. Sirgy, J. (1982), “Self-concept in consumer behavior: a critical review”, Journal of Consumer Research, Vol. 9 No. 3, pp. 287-300. Stern, L. and Reve, T. (1980), “Distribution channels as political economies: a framework for comparative analysis”, Journal of Marketing, Vol. 44 No. 3, pp. 52-64. Wells, W. (1993), “Discovery-oriented consumer research”, Journal of Consumer Research, Vol. 19 No. 4, pp. 489-504. About the authors Richard Elliott is Professor of Marketing and Consumer Research at the University of Bath School of management, and a Fellow of St Anne’s College, Oxford. He is a visiting professor at ESSEC Paris, Bocconi Universita Commerciale Milan, Thammasat University Bangkok, Hong Kong Polytechnic University and Helsinki University of Technology. Previously he was the first person to be appointed to a Readership in Marketing at the University of Oxford and was a Deputy Director of the Sa¨id Business School. He worked for 12 years in brand management with a number of US multinationals and as an Account Director at an international advertising agency. Richard Elliott is the corresponding author and can be contacted at: [email protected] Natalia Yannopoulou is Doctoral Researcher of Marketing and Consumer Research at the University of Warwick. She has an MBA with specialisation in marketing and has worked for six years in marketing and strategy with two US multinationals in Europe and Latin America.

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An analysis of antecedents and consequences of trust in a corporate brand Christina Sichtmann Free University of Berlin, Berlin, Germany

Antecedents and consequences of trust 999 Received November 2005 Revised November 2006 Accepted March 2007

Abstract Purpose – The paper aims to present a comprehensive framework for understanding consumer trust in a corporate brand, incorporating both the antecedents and consequences of trust. The paper also seeks to account explicitly for the differences in antecedents and consequences of trust found among customers and among non-customers. Design/methodology/approach – Data were obtained from 308 face-to-face interviews conducted in Germany. Structural equation modelling was used in order to test the proposed hypotheses. Findings – The results indicate that competence and credibility have a high explanatory power as antecedents of trust. Trust has a considerable impact on supplier selection for existing and new products, as well as on the word-of-mouth (WOM) behaviour of consumers. There are strong differences between customers and non-customers in terms of the antecedents and consequences of trust in a corporate brand. Research limitations/implications – In order to generalise the findings, the model needs to be tested with other samples and research objects. Marketing research into trust should focus on competence and credibility as important antecedents of trust. The findings propose that trust has positive effects on purchase intention and WOM behaviour. Marketing research should pay more attention to the role of trust in gaining new customers. Practical implications – Because of the positive influence on marketing success, managers should focus on trust-building activities that centre on competence and credibility primarily with current customers. However, trust also seems to be a good device to gain customers from competitors. Originality/value – The contributions of the paper are, firstly, a more complete framework of trust that analyses both antecedents and consequences of trust simultaneously. Secondly, the study allows a direct comparison of the difference in antecedents and consequences of trust between customers on the one hand and non-customers on the other. Keywords Trust, Mobile communication systems, Marketing, Buyer-seller relationships, Competences Paper type Research paper

Introduction In recent years, marketing researchers and practitioners have become increasingly interested in the concept of trust. However, despite the increasing quantity of research, the findings and knowledge about this phenomenon are limited when compared with other important concepts like attitude, customer satisfaction or loyalty. In the marketing literature, there are only a few empirical studies focused principally on trust that allow conclusions about the generalisability of the individual findings. Furthermore, results about the determinants and antecedents of trust in the marketing context are often contradictory. Consequently, marketing researchers have not adopted a common understanding of the concept, with the result that research on trust in marketing is parallel rather than coordinated or integrated.

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Compared to the long research tradition in other disciplines like psychology, sociology, philosophy, education or even organisational research, marketing research is still at the early stages of understanding this complex phenomenon. As a consequence, more empirical applications in the marketing context are needed to gain more insight and to fill the theoretical and empirical gaps in the marketing research into trust. In particular, the existing research has two important limitations: (1) Various studies found in the literature focus on either antecedents or marketing-related consequences of trust (e.g. Moorman et al., 1993; Michell et al., 1998; Garbarino and Johnson, 1999; Aydin and O¨zer, 2005), but only a few integrate both these aspects in one model (e.g. Anderson and Weitz, 1992; Ganesan and Hess, 1997). Very few look at consequences that are directly related to marketing success, such as the purchase intention of consumers (e.g. Doney and Cannon, 1997; Kennedy et al., 2001; Sirdeshmukh et al., 2002). Consequently, real consumer behaviour is not fully captured, as consumers are supposedly confronted simultaneously with the decisions both to trust and to act. Moreover, from a managerial point of view, practitioners want to know antecedents and success-related outcomes of trust, in order to make a marketing decision. As these may vary according to the product and context analysed (e.g. Sirdeshmukh et al., 2002), more studies that integrate both perspectives are needed. (2) There is wide evidence in the literature that trust develops within a customer relationship (e.g. Dwyer et al., 1987; Gundlach and Murphy, 1993). Therefore, marketing research into trust mainly focuses on analyses in buyer-seller relationships (e.g. Selnes, 1998; Doney and Cannon, 1997; Ganesan, 1994). However, there have scarcely been any studies analysing trust for non-customers, i.e. consumers who buy competing brands or who do not use the product category at all so far. Such an analysis seems relevant from both a managerial and an academic perspective. From a managerial point of view, a key task of marketing managers is to reduce the consumer’s uncertainty to encourage them to buy their products (Rabe, 2005). In general, trust is an effective means of reducing a consumer’s uncertainty (Morgan and Hunt, 1994). It follows that trust may have a positive influence for all consumers. As companies want not only to keep current customers but also to gain new customers, we need to analyse whether the development of consumer trust is a marketing strategy that goes beyond relationship-management. From an academic perspective, a systematic comparison of trust between existing customers on the one hand and those buying from a competitor or not at all on the other, may lead trust research in marketing in a new direction that is not focused solely on buyer-seller relationships but which instead broadens the perspective. This has particular interest in the case of consumer mass markets where communication is in general one-sided and trust in the supplier is mainly built through (corporate) branding. Against this background, the following research has two objectives: (1) a comprehensive framework that incorporates both the antecedents of trust and its outcomes in relation to marketing success is developed and tested empirically; and

(2) the issue of whether there are differences in the development and consequences of trust among existing customers as opposed to consumers who either do not buy the product at all or who buy it from a competitor. These research issues will be addressed in an empirical study. This paper is designed as follows. The article begins with a definition of trust and a conceptual framework that incorporates both antecedents and consequences of the phenomenon; then, hypotheses and a structural model are proposed, followed by a description of the research methodology and the presentation of the results; finally, the paper discusses the research and managerial issues arising from the results. The article concludes with implications for future research. Conceptual framework Definition of trust In general, trust involves two exchange partners. The partner who trusts is called the “trustor” (in this study, the consumer) while the partner who is trusted is referred to as the “trustee” (in this study, the supplying firm). In the research literature, some conditions under which trust develops are mentioned repeatedly (Rousseau et al., 1998). First, trust implies uncertainty on the part of the trustor about the motives and behaviours of the trustee (Arrow, 1973; Lewis and Weigert, 1985). Second, an aspect of uncertainty is the inability to control the trustee. Trust is based on the expectation that the supplying firm does not behave in an opportunistic manner even though the consumer cannot control it (Anderson and Weitz, 1992). Therefore, trust is a mechanism to absorb uncertainty (Ripperger, 1998). Third, the concept is associated with a risk and thus involves the vulnerability of the exchange partner that trusts (Moorman et al., 1993; Chaudhuri and Holbrook, 2001). In other words, in the event of opportunistic behaviour by the supplying firm, the consumer will face economic or social damage which outweighs the advantages which would arise from the betrayal of her or his own trust (Doney and Cannon, 1997). Fourth, both exchange partners can decide whether they want to honour or betray the trust. Thus, trust is voluntary (Ripperger, 1998). Finally, in the literature it is often stated that trust applies to events in the future (Luhmann, 2000; Mayer et al., 1995) – that is, the consumer extrapolates from past experiences to predict the future behaviour of the supplying firm (von Weizsa¨cker, 1980). Accordingly, the greater the number of positive experiences with a supplying firm, the stronger the consumer’s trust will be. Some scholars dispute whether people can develop trust in organisations or brands. However, due to the importance of (corporate) branding in marketing, this study follows Morgan and Hunt (1994) and Doney and Cannon (1997) in focusing on trust in a corporate brand (synonymously understood as the supplying firm) which is developed by consumers. Consequently, we focus on an exchange of goods where the customer expects the supplier to deliver a good quality. On the basis of the characteristics outlined above, trust is here defined as the belief which a consumer in a purchase situation characterised by uncertainty, vulnerability, lack of control and the independent-mindedness of the transaction partners relies on, to the effect that a company identified as a corporate brand will deliver a good or service at the quality which the consumer expects, on the basis of experiences which the consumer has made in the past.

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Antecedents of trust In the economic literature, antecedents of trust have been discussed and tested empirically a number of times (for an overview see the meta-analysis conducted by McKnight and Chervany, 2001). In brief, the antecedents proposed are barely comprehensible and inconsistent. To develop effective and efficient marketing programs, however, managers need results that are both specific and streamlined. Looking at consumer trust from a theoretical point of view, it is apparent that two requirements have to be fulfilled for trust to develop: the supplier needs to be able (i.e. competent) and willing to deliver a product or service at the expected quality (Eberl, 2004; Singh and Sirdeshmukh, 2000; Swan et al., 1999; Plo¨tner, 1995; Ganesan, 1994). The competence of a supplier comprises the qualifications, skills, competences and knowledge of the supplier required to deliver the product or service in the expected quality (Mayer and Davis, 1999; Brown and Dacin, 1997). Without being competent, a supplier cannot deliver good quality. Therefore, a consumer will only trust a supplier if s/he is convinced that the supplier is competent enough to fulfil her/his demands (Voeth and Rabe, 2004). This is corroborated by several studies that demonstrate that competence has a positive impact on consumer trust (e.g. Doney and Cannon, 1997; Moorman et al., 1993). Therefore, the following hypothesis is proposed: H1. The competence associated with a corporate brand positively affects trust in a corporate brand. The willingness of the supplying firm to deliver the product or service in the expected quality is not as easy to evaluate from the customer’s point of view. In essence, what s/he wants to know is whether the supplying firm will not behave opportunistically and will keep its quality promise (Ripperger, 1998). However, as s/he lacks information about the willingness of the supplier to deliver the product or service in the expected quality, s/he has to rely on the information given and the promises made by the supplying firm prior to the purchase of the product or service. This being the case, the only way a consumer can evaluate the willingness of the supplying firm is to assess its credibility (Erdem et al., 2002). In accordance with this, a number of studies have demonstrated a positive relationship between credibility and trust or even conceptualised trust partly as credibility (e.g. Kumar et al., 1995; Ganesan, 1994). Therefore, the following hypothesis is considered: H2. The credibility associated with a corporate brand positively affects trust in a corporate brand. Consequences of trust relevant to marketing In recent years, marketing scholars have increasingly emphasised the key role of trust in commercial exchange relationships and its potential to achieve competitive advantages (Barney and Hansen, 1994; Berry, 1996). In fact, several empirical studies exist which prove that trust has a positive impact on marketing success and, in particular, on a customer’s loyalty towards a supplier (e.g. Morgan and Hunt, 1994; Bartelt, 2002). However, only a few studies have focused on current purchase intentions, i.e. supplier selection (Doney and Cannon, 1997). Moreover, scholars analysing trust have paid little attention to the impact of trust on consumers’ purchase intention for product innovations or on their word-of-mouth (WOM) behaviour. As

both are key success factors in many markets (e.g. Pauwels et al., 2004; Turnbull et al., 2000; Mitchel and Greatorex, 1993), it seems essential to close this research gap. How does trust influence supplier selection for existing and new products and the WOM behaviour of customers? The definition developed in this paper indicates the positive effect of trust in reducing a consumer’s uncertainty (e.g. also Morgan and Hunt, 1994). From a theoretical perspective, trust works as an information surrogate if no information about the quality of a product or service is available. Therefore, trust can be viewed as an indicator for the general reliability of the supplier and as an information substitute for all kinds of information which would otherwise need to be used to assess a product’s or service’s quality (Adler, 1998). Trust has also been recognised as a “pledge” in the hands of the consumer (Spremann, 1988). In fact, the trust of a consumer is a valuable and significant asset for a company. If a corporate brand no longer meets the quality expectations of a customer, another brand will be selected. As a consequence, a company will lose the specific relationship-investments that have been made (Shapiro, 1983). Moreover, an unsatisfied customer can spread the word about the bad quality in the market and thus keep other consumers from buying this specific brand. Accordingly, a consumer can assume that a trusted company is motivated to offer high-quality products. Finally, existing studies show that trust affects relationship commitment (Morgan ¨ zer, 2005) in a positive way. Thus, and Hunt, 1994) and customer loyalty (Aydin and O if a consumer trusts a corporate brand s/he is likely to form a positive behavioural intention towards the brand. This discussion leads to several hypotheses. First, in accordance with past research, a positive impact of trust in a corporate brand on the purchase intention for products or services already offered on the market is assumed, leading to the following hypothesis: H3. Trust in a corporate brand positively affects current purchase intentions. The ability to reduce consumers’ uncertainty is particularly important for product innovations, due to the novelty of the product (Rogers, 2003). Trust in a corporate brand, which reflects the good experiences with a supplier that have occurred in the past, can be transferred to new products offered under the same brand-name. Therefore, the following hypothesis is considered: H4. Trust in a corporate brand positively affects purchase intentions for product innovations. Finally, a positive relationship between trust and the WOM behaviour of consumers is hypothesised. From a theoretical point of view, trust in a company reduces the social risk associated with a recommendation. Therefore, trusting a brand reduces the risk of disappointing a person who seeks advice which would eventually rebound negatively on the person who gave the advice, leading to the following hypothesis: H5. Trust in a corporate brand positively affects the WOM behaviour of consumers. Finally, we cannot neglect the fact that there is interdependence between these marketing-success-related variables, too. First, the purchase intention for an existing product may have a positive impact on a new product or service offered by the same company. Thus, the following hypothesis should be tested:

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H6. The current purchase intention positively affects the purchase intention for a product innovation. Second, studies have proved that the purchase intention positively influences the WOM behaviour of customers (Wirtz and Chew, 2002). Therefore, the following hypothesis is proposed:

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H7. The current purchase intention positively affects the WOM behaviour of consumers. Third, a positive relationship between the purchase-intention in relation to a product innovation and the WOM behaviour is to be hypothesised. On the one hand, by recommending a new product or service to others, a consumer may hope for advantages for him or herself, that may arise from a broader diffusion of the service, e.g. a lower price through lower overall production costs due to mass production (Rabe, 2005). On the other hand, broader diffusion of a product or service may reduce a consumer’s uncertainty in terms of her/his cognitive dissonance associated with a purchase. Thus, the following hypothesis should be tested: H8. The purchase intention for a product-innovation positively affects the WOM behaviour of consumers. Following from this discussion, a theoretical model representing the relationships between antecedents and consequences of trust is summarised in Figure 1. Differentiating between customers and non-customers Up to this point, the model has not differentiated between different types of consumers, as addressed in the second research question, i.e. whether there are differences in terms of how trust is built and how it affects consumer behaviour depending on a consumer’s experiences with a supplier. There is a consensus in the literature that trust in a relationship of economic exchange develops through direct experiences in stages over time (Swan et al., 1985).

Figure 1. Theoretical model

Consequently, the literature assumes that trust becomes more relevant as the relationship between supplier and customer becomes more intense (Gundlach and Murphy, 1993; Dwyer et al., 1987). However, the research literature offers no findings about the determinants and role of trust outside a relationship. However, the competence and credibility of a supplying firm may be evaluated by a consumer even if s/he has not had direct experiences of this supplier (Press, 1997). The question is whether this evaluation has the same effect on trust as it does for existing customers. Furthermore, it should be tested whether trust is also a means of gain new customers. In the literature, no direct comparison between customers and non-customers can be found. Therefore, in what follows, the model will be analysed in terms of differences between customers on the one hand, and on the other those buying from a competitor or not buying the existing brand-category at all. Method Measurement Most of the constructs were measured using multi-item, six-point, Likert-type scales with “strongly disagree” and “strongly agree” as anchors. Only credibility was measured with a semantic differential, following research done on advertiser and corporate credibility (e.g. Lichtenstein and Bearden, 1989; MacKenzie and Lutz, 1989) by asking the respondents to assess the supplying firm as regards keeping promises, using three pairs of adjectives. Whenever possible, existing forms of measurement of the construct were used and adapted to the understanding of the constructs in this research. The trust scale was developed based on the trust scales used by Ohanian (1991), Morgan and Hunt (1994) and Sirdeshmukh et al. (2002). The credibility measure was developed based on the scales of Ganesan and Hess (1997). The measurement of the competence construct is taken from the studies of Goldsmith et al. (2000) and Ohanian (1991). Purchase intention and word-of-mouth behaviour were measured according to a study by Lorbeer (2003). To acquire initial orientation in developing the scales, a preliminary study was conducted with marketing students at graduate and doctoral level. The respondents were asked to indicate whether the scales actually measured what they intended to, whether there were aspects missing that had to be added and whether the questions were clearly and non-ambiguously worded. The resulting scales are shown in Table I. The Cronbach’s a values exceed the threshold values recommended in the literature (Cronbach, 1947; Boomsma, 1982). A confirmatory factor analysis was conducted to establish the validity and the reliability of the scales (Bagozzi et al., 1991; Anderson and Gerbing, 1988). Sample and data An empirical study was conducted in order to test the hypotheses derived above. As research object, mobile phone services were chosen. First of all, this choice reflects the fact that the mobile phone market is still a moving market with many innovations. It is highly competitive. Therefore, it is to be expected that for market-growth purposes, the established mobile phone providers try to retain their customers as well as to gain new customers with new services. Thus, supplier selection for existing and new products and WOM behaviour are crucial target variables for mobile phone providers.

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Average Item Cronbach’s Composite variance reliability reliability extracted a Trust [Brand] [Brand] [Brand] [Brand]

feels responsible. is reliable. is trustworthy. is dependable.

Competence [Brand] is a leader in the mobile phone business [Brand] has sufficient experiences in the mobile phone business [Brand] is very competent [Brand] has outstanding qualifications in the mobile phone business

0.77

0.83

0.82

0.66

0.83

0.76

0.70

0.88

–

–

–

–

–

0.73

–

–

0.63 0.60 0.67

0.61 0.47 0.82

Current purchase intention In the future I will use the services of [brand] I intend to sign or extend a contract (24-months or prepaid) with [brand]

Table I. Measurement information

0.89

0.37

Credibility (That [brand] keeps the promises made to its customers is . . .) . . . improbable/probable . . . not foreseeable/foreseeable . . . insecure/secure

Purchase intention for product innovation I will use [brand] (name of the new service) in the future

0.82 0.41 0.49 0.73 0.53

0.84 0.74 –

WOM behaviour Talking to my friends I talk positively about [brand] If a good friend asked me which mobile phone provider he should choose I would recommend [brand]

0.36 0.90

Note: [Brand] stands for the brand name of the supplier

Additionally, a high penetration rate of mobile phone services is observed. A real mobile phone provider was used in the study as survey object. The study was conducted in Germany because the market is of a manageable size, with only four mobile phone providers. For reasons of sample size, high penetration as well as a manageable market is crucial for a valid comparison between customer and non-customer groups. First, the penetration rate ensures that respondents actually know the corporate brand used in the study. Second, the limited number of providers ensures that a sufficient number of customers and non-customers may be represented by the survey, while the market is still highly competitive, so that trust may lead to a competitive advantage. Furthermore, the German market was chosen because just a few weeks before the study was conducted, a mobile phone service comprising several different

entertainment services was introduced to the market by the provider chosen, representing the innovative service used in the survey. The service was described in the questionnaire as comprising several mobile entertainment services like Multimedia Messaging Services, games, fun-messages with cartoons, ordering picture cards, etc. Original brand names, signs and descriptions of the provider were used. The purchase intention for the existing services comprised the services currently offered by the mobile phone provider used in the study. The questionnaire was designed to provide information about both the product and the specific mobile phone provider. In order to be able to distinguish between customers and non-customers and to guarantee a good sample size for the customer group, one of the two biggest providers in Germany was chosen for the questionnaire. The respondents were questioned in face-to-face-interviews to guarantee the quality of the interviews. In this manner, the interviewers could ensure that the respondents took in the information provided in the questionnaire about the new mobile phone services and the mobile phone provider and they could be responsive to further questions about the services. According to the recommendation of Calder et al. (1981), a homogeneous sample was used to reduce measurement errors associated with particular characteristics of the sample. In the mobile phone business it is to be assumed, for example, that younger people are more inclined to buy innovations than older people. Therefore, the current study concentrated on persons between 18 and 30 years of age who used mobile phone services. Respondents were recruited in a pedestrian zone in a large German city. Before beginning the questionnaire, they were first asked whether they fell in the age range defined. After eliminating outliers, 308 questionnaires could be used for the analysis. Sample characteristics seem to be representative of German mobile phone users in this market segment: 54.2 per cent of the respondents were male, and the mean age was 23.5 years. Respondents spent e33.17 per month on mobile phoning, and 28.9 per cent of the sample were customers of the provider used in the questionnaire. Testing the hypotheses To test the hypothesised relationships in the model outlined in Figure 1, a structural equation model was estimated with LISREL VIII, using maximum likelihood method (for the procedure in general, see Hair et al., 2004). The overall fit measures suggest that the data provide a good fit for the hypothesised causal model (Bagozzi and Yi, 1988; Baumgartner and Homburg, 1996). The goodness-of-fit index (GFI ¼ 0:93), adjusted goodness-of-fit index (AGFI ¼ 0:90), root mean square error of approximation (RMSEA ¼ 0:055), standardised root mean square residual (SRMR ¼ 0:061) and comparative fit index (CFI ¼ 0:98) are within the acceptable range. Therefore, the model exhibits a reasonable fit to the data. Turning to the causal relationships themselves, the empirical findings suggest that the hypotheses framed out are corroborated by the data. H1 suggests a positive relationship between credibility and trust in a corporate brand. This link is supported by the data (g1 ¼ 0:30, t ¼ 4:95). In the same way, competence of a supplier has an impact on the trust in a supplier (H2: g2 ¼ 0:69, t ¼ 7:71). However, it seems to be much more influential than credibility. The squared multiple correlation of trust (SMC ¼ 0:72) indicates significant explanatory power of the two antecedents.

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Table II. Summary of results

H3-H5 examine the marketing-related consequences of trust in a supplier. In the same way as proposed in H3, trust has a significant and positive effect on the purchase intention of an existing service (g3 ¼ 0:30, t ¼ 4:58). This result indicates that trust is in fact a major antecedent of customer loyalty. However, it has to be kept in mind that the SMC (0.09) of the construct is quite low indicating that there are other factors influencing current purchase intentions. The hypothesised positive effect of trust on the purchase intention of a new service (H4) is also confirmed as can be seen from a standardised coefficient of g4 ¼ 0:12 (t ¼ 2:21; SMC ¼ 0:39). As proposed in H5, trust positively and significantly affects the WOM behaviour of consumers (g5 ¼ 0:13, t ¼ 3:15; SMC ¼ 0:82). Together, the results for these hypotheses support the positive effects of trust on marketing success. However, the influence on trust seems to be lower for the purchase intention for new services and the WOM behaviour than it is for the purchase intention for existing services. The results also yield major influences within the success variables themselves. As hypothesised in H6, the intention to buy an existing service has a major impact on the decision to buy a new service provided by the same company (g6 ¼ 0:58, t ¼ 10:62). H7 examines whether the purchase intention of an existing service influences the word-of-mouth-behaviour of consumers. Support for this hypothesis is in evidence (g7 ¼ 0:80, t ¼ 9:15). Although weak, the intention to buy a new service from the same supplier has a significant effect on the WOM behaviour (H8: g8 ¼ 0:09, t ¼ 1:94). Having analysed the relationships between the consequences of trust that are directly related to marketing success, the total effects of trust on these constructs can be calculated. As mentioned above, trust has a total effect of gTE1 ¼ 0:30 on the purchase intention for an existing service. However, referring to the WOM behaviour and the intention to buy a new service, trust has a total effect of respectively gTE2 ¼ 0:40 and gTE3 ¼ 0:29. In summary, as Table II shows, trust has a considerable impact on all of the marketing-relevant target variables analysed in the study. A multiple group structural equation model ( Jo¨reskog and So¨rbom, 1996; Bollen, 1989) was estimated to compare the subsamples of current customers and non-customers. For this purpose, first a model was estimated where all parameters were made to be equal across both subsamples (restricted model). Then a model was estimated where all parameters were made equal except for a specific one (general model). This was done for all nine relationship parameters. To evaluate the significance of the influence of the moderator variable, the x 2 statistic was used. As the two models are nested models, the x 2 value will always be lower for the restricted Path

Hypothesis

Credibility ! trust Competence ! trust Trust ! existing service Trust ! new service Trust ! WOM behaviour PI existing service ! PI new service PI existing service ! WOM behaviour PI new service ! WOM behaviour

H1 H2 H3 H4 H5 H6 H7 H8

Standardised coefficient 0.28 0.69 0.30 0.12 0.13 0.58 0.80 0.09

t-value 4.95 7.71 4.58 2.21 3.15 10.62 9.15 1.94

( p ¼ 0:00) ( p ¼ 0:00) ( p ¼ 0:00) ( p ¼ 0:00) ( p ¼ 0:00) ( p ¼ 0:00) (p ¼ 0:00) ( p ¼ 0:03)

model than for the general model. However, the important question is whether the improvement in x 2, when moving from the restricted to the general model, is significant. From Table III we see that there are significant differences for six of the nine relationships analysed. In detail, credibility does have a much stronger influence on trust for customers than for non-customers. Turning to the consequences of trust, the results indicate that trust in general does have a greater impact on the behavioural intentions of customers. The impact of trust on the current purchase intention is very strong compared to non-customers. This strong relationship indicates that trust is in fact an important factor in customer relationships. Nevertheless, the results also indicate that trust has a positive effect on the behavioural intentions of customers from other providers. In terms of purchasing innovations and of recommending the provider to other customers, trust in fact has no significant influence for non-customers. Conversely, for existing customers trust seems to be an important factor. Finally, there is a difference according to the strength of relationship between the purchase intention of current services and the WOM behaviour in general. Not surprisingly, this relationship is much stronger for customers.

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Discussion Research issues In this study, a model of trust was presented and empirically tested which incorporated both antecedents and consequences of trust that directly influence a product’s or service’s success. Thus, it provides a more complete framework than various other studies which focus on this construct. The key research contributions of the study are threefold: (1) The findings show that both competence and credibility are important antecedents for the development of trust. The SMC value of 0.72 certifies that the antecedents integrated into the model have a high explanatory power. However, the results indicate that competence seems to be much more important than credibility. This is an interesting finding as the (marketing) literature on trust often emphasises the importance of attributes like benevolence, integrity and credibility, which relate more to the willingness of a supplying firm to supply a product or service in an expected quality (e.g. Ganesan, 1994; Doney and Cannon, 1997). For example, a meta-analysis Customer Path Credibility ! trust Competence ! trust Trust ! existing service Trust ! new service Trust ! WOM behaviour PI existing service ! PI new service PI existing service ! WOM behaviour PI new service ! WOM behaviour

Yes

No

x 2 difference (Ddf ¼ 1)

0.53 (t ¼ 5:38) – 0.55 (t ¼ 4:28) 0.27 (t ¼ 2:68) 0.38 (t ¼ 3:82) – 0.84 (t ¼ 6:21) –

0.19 (t ¼ 3:11) – 0.23 (t ¼ 2:92) NS NS – 0.65 (t ¼ 6:32) –

11.33 ( p ¼ 0:00) NS 4.91 ( p ¼ 0:02) 4.12 ( p ¼ 0:04) 7.99 ( p ¼ 0:00) NS 3.99 ( p ¼ 0:05) NS

Table III. Differences between customers and non-customers

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conducted by Swan et al. (1999) showed that a salesperson’s benevolence is more important than her/his competence for the development of trust. Other studies, in contrast, showed no significant impact of competence on trust (e.g. Selnes, 1998). A possible explanation for the dominance of competence in relation to credibility may be the context of the study. The mobile phone market in Germany is competitive and largely satisfied. This leads to a market situation where mobile phone providers actually struggle to sell their products whereas demand does not grow any more. Consequently, customers pay particular attention to the quality of the service (e.g. availability of the network, customer service, quality of mobile phones provided) when choosing their provider. They are probably convinced that mobile phone providers want to offer the best quality, but are not always competent enough to do so. As a consequence, trust in a mobile phone provider is influenced strongly by its competence. In summary, the findings indicate that the relative influence of competence compared to credibility on trust may be caused by contextual factors. This is in accordance with a study conducted by Sirdeshmukh et al. (2002), where results indicate a different influence of competence and benevolence on trust depending on the research context. The unambiguous results relating to the antecedents of trust may thus be explained by the different contexts trust in which trust is examined in different empirical studies. Research on trust in marketing should consider the question of which antecedents may be applicable in which situation. In addition, marketing researchers are strongly advised to evaluate their findings about antecedents of trust in terms of their particular research object. (2) The results provide support for the positive influence of trust on marketing-relevant success factors. Trust has a strong direct impact on the current purchase intention. This result is in line with several studies proving the positive relationship between trust and customer loyalty (e.g. Aydin and ¨ zer, 2005). However, the explanatory power of trust with a SMC of 0.09 is not O so strong. This indicates that there are other factors influencing the current purchase intention that are not included in the focus of the current study. One possible explanation is that customers of mobile phone providers in general are tied to contracts extending over a certain period of time. Therefore, their current purchase decision may be involuntarily restricted during that time. Further research should include other factors that may influence the purchase intention of customers and/or moderate the relationship between trust and purchase intention. As regards the total effect of trust on the purchase intention for a product innovation and the WOM behaviour of consumers, the results indicate a strong influence from trust. Considering all constructs integrated in the model, both target variables have a great explanatory power with SMCs of 0.39 and 0.82, respectively. (3) The findings show differences in the antecedents and consequences of trust between customers and non-customers. The credibility construct exerts a stronger influence on trust for customers than for non-customers. This can be explained by the fact that customers are actually able to verify the credibility of the supplying firm after having purchased the product by comparing the information given and the actual quality.

The results further indicate that trust is more important for the behavioural intentions of customers. In accord with prior studies, the differentiated analysis provides support for the hypothesis that trust is, in the first place, an antecedent of customer loyalty. The findings show that it has a much stronger impact on the current purchase intentions of customers compared to non-customers, indicating that trust is particularly effective in retaining customers. Underlining this conclusion, there is no significant relationship between trust and either the purchase intention for a product innovation or the WOM behaviour of non-customers. However, as the results show a significant impact of trust on the current purchase intentions of customers of other mobile phone providers, future research should pay more attention to the effects of trust other than customer relationships. Managerial implications The results of the present study have important managerial implications. The first and most important implication is that managers should focus on trust-building activities, as trust plays a major role in their marketing success. This seems particularly important for the German mobile phone market, on which this study focused. In the past, mobile phone providers focused primarily on pricing. However, the results indicate that for the sustainable market growth associated with retaining current customers, motivating them to buy product innovations and to recommend the services, a strategy change seems essential. Marketers should pay more attention to the brand image and develop trust in the brand. Additionally, the study aimed to give recommendations for developing trust. The findings show that companies should show and communicate to consumers that they are competent and credible. In particular, the competence of a brand should be transported by, for example, communicating the leadership, the great experience and the qualifications the provider has achieved in the relevant market. Moreover, marketers in the mobile phone business are strongly advised not to make promises about the quality of a product or service that cannot be fulfilled. Otherwise trust cannot be developed. Finally, practitioners are strongly advised to invest in trust-building activities in their customer relationships. The relationship with a customer should be viewed as an asset that should not be lost by betraying a consumer’s trust. However, as there is a positive impact of trust on the current purchase intention of customers who use mobile phone services of other providers, marketers may be advised to also focus on trust-building activities with consumers in general. This finding indicates that trust may be an effective strategy to gain customers from competitors, which is particularly important for such competitive markets as the mobile phone business. Limitations and future research There are several limitations of the study and areas for future research that should be mentioned. . The findings are limited to the sample used in the study and the specific research object chosen. In order to generalise the results, it should be replicated with other samples and other research objects.

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.

.

The findings are limited to the specific understanding and measurement of the concepts applied in the study. This is particularly relevant to the concept of trust, given the broad range of definitions that exist in the scholarly literature. As a consequence, a number of different scales have been developed specially for the trust construct. Future studies are needed to validate the measures used in the current study. This study focused on trust as an independent construct. However, as can be seen from the SMC value, there are additional variables that influence the selection of a supplier for existing and new products. Future studies should examine other constructs, such as customer satisfaction, and analyse their interaction with trust.

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Further reading Agustin, C. and Singh, J. (2005), “Curvilinear effects of consumer loyalty determinants in relational exchanges”, Journal of Marketing Research, Vol. 42 No. 1, pp. 96-108. Auh, S. (2005), “The effects of soft and hard service attributes on loyalty: the mediating role of trust”, Journal of Services Marketing, Vol. 19 No. 2, pp. 81-92. About the author Christina Sichtmann is an Assistant Professor of Business-to-Business Marketing at the Free University of Berlin (Germany). She has a doctorate from the University of Hohenheim. Her research interests are focused on pricing, business-to-business marketing and services marketing. She has published in such journals as the European Journal of Marketing and the International Journal of Market Research. Christina Sichtmann can be contacted at: [email protected]

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EJM 41,9/10

Trust and reliance in business relationships

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Management School, Lancaster University, Lancaster, UK, and

Stefanos Mouzas Stephan Henneberg and Peter Naude´ Manchester Business School, Manchester, UK

Received November 2005 Revised November 2006 Accepted March 2007

Abstract Purpose – The aim of the paper is to define the role of trust and reliance in business relationships. Design/methodology/approach – After this paper identifies gaps in the literature, a conceptual model is developed, and its implications analyzed and discussed. Findings – One of the particularities of trust is its inherent anthropocentricity. As a concept, trust appears to be more applicable at the level of inter-personal relationships than to inter-organizational relationships. Business relationships involve both inter-personal and inter-organizational relationships. The paper considers a number of other possibilities and argues that there is a need to look at reliance as an incremental intellectual lens on business relationships. Research limitations/implications – Within a business-to-business marketing context, the paper discusses the impact of such a multi-faceted conceptualization for research in business relationships. Practical implications – Marketing researchers often neglect the fact that relationships between organizations are based on mutual interests, and attempt to stretch the concept of trust towards inter-organizational relationships without the necessary theoretical scrutiny. Originality/value – Applying the concept of trust to personal relationships and reliance to inter-organizational relationships, the paper introduces a complementary, rational standard that contributes to the calculability in exchange relationships. Keywords Business-to-business marketing, Relationship marketing, Trust Paper type Conceptual paper

Introduction Trust is perceived in the marketing literature as a significant, if not pivotal, aspect of business relationships (Anderson and Weitz, 1989; Ganesan, 1994; Moorman et al., 1992, 1993). Since Morgan and Hunt’s (1994) commitment and trust theory, trust has become one of the most central aspects of business-to-business marketing. It has been conceptualized in the marketing literature in two different ways: (1) as a constituent component of relationship quality (Dwyer et al., 1987); and (2) as a necessary requirement and determinant of sound business relationships (Ha˚kansson et al., 2004). European Journal of Marketing Vol. 41 No. 9/10, 2007 pp. 1016-1032 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560710773327

Hence, existing marketing literature emphasizes trust as a fundamental concept characterising most inter-personal and inter-organizational relationships. Therefore, trust-based relationships build one of the most obvious characteristics of the conditio humanae (Elster, 2000). Yet in business-to-business marketing, trust is still a concept that is in need of clarification and theoretical scrutiny. The domain and limitations of

trust in business relationships need to be defined and scrupulously analysed. There are three reasons that necessitate such theoretical scrutiny: (1) Although the meaning of trust is intuitively understood, researchers from different backgrounds ascribe divergent meanings to it. Existing definitions of trust (Deutsch, 1960; Dwyer et al., 1987; Anderson and Weitz, 1989) pool heterogeneous conceptual elements together and usually do not consider other alternative possibilities such as confidence intervals, systems, or familiarity (Parsons, 1951; Luhmann, 1979; Smith, 2001; Jalava, 2003; Marsh and Dibben, 2005). (2) Trust is an anthropocentric notion, and as such inextricably linked to human beliefs, sentiments, or intentionality (Blau, 1964; Pruitt, 1981; Rotter, 1967; Fukuyama, 1995; Solomon and Flores, 2001). It may be possible to have trust in an organization; however, trust by an organization appears to be nonsensical (Simmel, 1950; Mo¨llering et al., 2004. As such trust is more applicable to inter-personal relationships than business relationships (Parsons, 1951; Hardin, 1991). (3) Applying the notion of trust to business-to-business relationships seems problematic. Relationships between organizations are invariably based on considerations of mutual interest and risk assessment (Sebenius, 1992), resulting in certain levels of confidence regarding the viability of the business relationship. In risk-laden business-to-business relationships, the establishment of accountabilities through explicit performance standards and monitoring may be in conflict with interpersonal trust (Smith, 2001; Marsh and Dibben, 2005). For this reason, long-term business relationships that are not based on trust can exist; and have previously been theoretically described (Lambe et al., 2000). These business relationships, while characterized by collaboration and interdependence, function despite there being a lack of trust. We posit that business relationships must be conceptualized by understanding both inter-personal and inter-organizational relationships. Consider, for example, the business relationship between manufacturer Alpha and retailer Beta. Alpha’s key account manager is responsible for customer Beta. The key account manager develops inter-personal relationships with Beta’s business managers and simultaneously he represents Alpha’s business interests. Alpha’s key account manager co-operates with Beta’s business managers and establishes an inter-organizational exchange between manufacturer Alpha and retailer Beta which is often complex, ongoing and objectified. However, Alpha’s key account manager is also engaged in social and subjective inter-personal relationships with Beta’s business managers. Consequently, the relationship is an amalgamation of strong and weak ties that are embedded in each other (Granovetter, 1973, 1985). This relationship structure is further complicated by the fact that business-to-business exchanges may involve several offerings, electronic data interchange or supply structures, invoicing and accounting systems, and also legal business contracts. We argue that in such business relationships the concept of trust needs to be supplemented by an additional standard that contributes to both the theoretical conceptualisation and managerial calculability and certainty of business-to-business exchanges. First, we apply the construct of trust to “inter-personal” aspects of

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interactions evidenced, for example, by the ongoing negotiation between companies. It is thus possible that one may trust the key account manager of an exchange partner, but this does not necessarily imply that one can equally trust the company that he represents. Business relationships are often characterized by a stratified and contradictory web of inter-personal trust relationships between employees of interacting organizations. Second, while trust cannot be reified at the organizational level, the rational construct of reliance can be successfully applied to business relationships (Fuller and Perdue, 1936, 1937; Atiyah, 1979). This is characterized by an objectified rationality that minimizes the risk of exchange relationships and delivers a legitimate right to the companies involved. However, we do not argue that the construct of reliance covers all the inter-organizational aspects that are not explained by trust. As such, we argue that reliance is one possible complementary construct to trust that covers additional rational elements of inter-organizational relationships. This paper deals with trust and reliance in a business-to-business marketing context, and thereby extends our conceptual understanding of trust in business relationships. We therefore limit our conceptual considerations specifically to aspects relating to business-to-business marketing. Our unit of analysis is not at the level of the individual manager or a single organization, but the business relationship itself. The structure of the paper is as follows: in the next section we discuss the emotive standard of trust, and then move on to present the rational standard of reliance. Identifying gaps in the existing body of marketing theory, we propose a new framework of trust and reliance that characterizes business relationships, and then discuss implications for marketing; and also offer a series of propositions as suggestions for further research. The emotive concept of trust Trust has been embraced in business-to-business marketing as a fundamental cornerstone of co-operation (Dwyer et al., 1987; Ha˚kansson et al., 2004). Assuming that there is an interest between two parties for an exchange to take place, there is a basis for co-operation and collaboration as a precursor to a relationship (Ford et al., 2003). Co-operation is not defined as an object-centred activity, but rather as collaborator-centred interactions based on a perceived compatibility of goals, aims and values. Supporters of the interaction approach (Ford, 1980; Ha˚kansson, 1982; Turnbull et al., 1996) have analysed in fine detail dyadic exchange relationships, and introduced the concept of atmosphere to capture the subtle idea of trust in a business relationship. The view of markets as interconnected networks of co-operative exchange relationships, developed by the network approach to business-to-business marketing (Ford, 1990; Axelsson, 1992; Johanson and Mattsson, 1992; Easton and Ha˚kansson, 1996) emphasized the existence of heterogeneity. As in Alderson’s (1957) general theory of marketing, competition is lessened by complementarities or interdependencies between sellers and co-operation between buyers and sellers (Mattsson, 1987). Building on Fiske’s (1990) relational forms, Sheppard and Sherman (1998) conceptualize the grammars of trust in relationships as four distinct and ordered forms: (1) shallow dependence; (2) shallow interdependence; (3) deep dependence; and (4) deep interdependence.

Wicks et al. (1999) develop a concept of “optimal trust” in relationships. Morgan and Hunt’s (1994) commitment and trust theory re-enforces the use of inter-personal conceptualisations of trust (Mayer et al., 1995). For example, trust may provide the buyer with the confidence of a satisfying exchange relationship (Hawes et al., 1989) and in the field of supply chains, trust could lead to improved responsiveness (Handfield and Bechtel, 2002). Consequently, business managers have been regarded as initiators of trust in exchange relationships, and research has focused on the identification of factors that encourage or constrain managerial trustworthy behaviour (Whitener et al., 1998; Jeffries and Reed, 2000). Mutual trust is therefore often perceived as being the social capital of a relationship (Mo¨llering et al., 2004). Notwithstanding the significance of trust in business relationships, the domain and limitations of trust are two issues that remain unresolved. First, the domain of trust is rarely specified and its conceptual dimensions are used with imprecision and ambiguity (Barber, 1983; Solomon and Flores, 2001). This may be attributable to the fact that trust is, indeed, a “central, superficially obvious but essentially complex process” (Blois, 1999, p. 197). Conceptually, trust is embodied in the dimensions of belief, expectation, willingness and confidence. Most studies on trust agree that trust is a “psychological state” (Rousseau et al., 1998, p. 398) associated with beliefs, attitude, or sentiments concerning the likelihood that the actions or outcomes of another party will be acceptable (Luhmann, 1979; Barber, 1983; Lewis and Weigert, 1985; Kramer and Tyler, 1996; Jalava, 2003) or that they will serve the actors’ interests (Deutsch, 1960; Fukuyama, 1995). For Smith (2001), for example, trust concerns the inherent “uncertainty about outcomes, am ambiguity of objective information and exercise of discretion about action” (Marsh and Dibben, 2005, p. 29). Trust is thus “an internal attribution, a moral exercise of free will that assumes most significance in situations where there is a lack of regulation or means of coercion” (Marsh and Dibben, 2005, p. 29). Whitener et al. (1998) emphasize three significant facets of trust in exchange relationships: (1) trust in another party is considered as belief or sentiment that the other party will act benevolently; (2) one cannot enforce the other party to fulfil its obligations; and (3) trust involves a degree of dependency. It was therefore argued that trust is linked with the acceptance of “risks associated with the type and depth of the interdependence inherent in a given relationship” (Sheppard and Sherman, 1998, p. 423). Second, the limitations of trust need to be addressed. Since organizations are deprived of emotions, trust at the inter-organizational level remains purely cognitive (McAllister, 1995). Conduct qua persona is restrained and led by organizational roles (Ring and Van de Ven, 1992). This means that personal loyalty may deviate from organizational interest. However, if the origin of trust lies in individuals, we may posit that individuals in an organization may share an orientation towards another organization, which is quite different from claiming that organizations trust each other. It is individuals, as members of organizations, rather than the organizations themselves, who trust (Zaheer et al., 1998). There is often an inherent error to attribute individual motivations and behaviours to organizations and thus to commit a “cross-level fallacy” (Rousseau et al., 1998) which can

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result in spurious reification of social constructs. The frequent lack of clarity about the unit of analysis may lead to unintended anthropomorphising of organizations and business relationships. The use of anthropocentric and behavioural conceptualisations contributes to a normative view of trust and to a perceived dichotomy between trust and distrust in relationships (Sitkin and Roth, 1993). Trust is regarded as “good” and distrust “bad” (Lewicki et al., 1998). Transaction-cost approaches to business relationships (Williamson, 1975), for example, look at trust as a condition for reduced opportunism among contracting parties, which results in lower transaction cost. Similarly, trust is regarded as a possible cause of high impact and satisfaction (Michell et al., 1998), or a necessary condition for successful business-to-business negotiations (Lewicki et al., 2003), and within the Industrial Marketing and Purchasing (IMP) Group, trust is seen as a good ingredient for co-operation, with empirical research focused on understanding its creation and development (Young and Wilkinson, 1988; Ford et al., 2003). Moving beyond the perceived dichotomy of trust and distrust, Smith (2001) draws a clear distinction between “trust” and “confidence”. In comparison to trust, the notion of confidence as an alternate possibility “concerns the establishment of explicitly predictable outcomes, in which information is objective, standardised and scientific and there is little opportunity [. . .] to exercise discretion about action” (Marsh and Dibben, 2005, p. 29). The active search and establishment of “confidence intervals” (Smith, 2001), through a periodic monitoring of performance may, however, be indicative of the existence of distrust in business relationships. The concept of “confidence” is hence potentially self-contradictory as it is a “clearly different interpretation of what is meant by confidence” (Marsh and Dibben, 2005, p. 29). Nonetheless, the concept of confidence substantiates the need for resolving the issue of poor specification of the domain of trust as well as its inherent limitations; it reminds us that organizations do evaluate the relationships they seek to engage in via a form of risk analysis, and reinforces the need for an incremental, rational standard for institutionalized rules of business conduct. The rational standard of reliance In this section, we juxtapose this emotive aspect of trust in a business relationship with another facet, that of “reliance”. We choose “reliance” as one possible complementary construct to trust in order to stress the diametrically opposed characteristics of a non-person based, rational standard within inter-organizational relationships. This implies that trust and reliance are independent characteristics of inter-organisational relationships. Business relationships presuppose the existence of complementarity in resources, activities and information (Ford et al., 2003). Complementarity among organizations can lead to inter-organizational exchange, but this has its price: specifically, reliance on other organizations. Procter & Gamble relies on the capacity of suppliers of raw materials, and the retailer Tesco relies on Procter & Gamble’s capacity to deliver consumer goods at specified times to its supermarkets. When British Airways signs a contract with Airbus for the purchase of 300 new airplanes, British Airways relies on Airbus that the airplanes are delivered on time and to a specified quality, and Airbus relies on British Airways that invoices will be paid according to agreed terms and conditions. Cunningham (1993) argued that the reliance of company R upon company C is directly proportional to company R’s investment in goals mediated by company C,

and is inversely proportional for company R to the availability of those goals outside the R-C business relationship. The customer’s goals mediated by the supplier might include low cost, flexible credits, technical advice or access to new technology. An exchange between organizations implies the existence of consensus among parties (Buckley, 2005), which may be manifested by letters, phone calls or even contracts. The rational standard of reliance is therefore a construct that accords organizations a remedy for detrimental reliance against non-performing organizations (Buckley, 2005; Cohen and McKendrick, 2005). Such mechanisms will be in place regardless of any trust that is shown by members of the organization. In this way the rational standard of reliance is a key dimension in business-to-business agreements, and its derivation as a prime concern deserves some further discussion. Business-to-business agreements are mutual promises that attain moral, social, as well as legal force (Fried, 1981). First, agreements among parties establish a relationship based on recognition and respect among those who decided to engage (Markovits, 2004). The ontological foundation of each business relationship lies in the basic principle of “consent-based exchange” (Buckley, 2005). The principle of “consent-based exchange” treats contracting parties as actors that bring to the exchange certain entitlements and they manifest their consent to the transfer of these entitlements (Barnett, 1986; Biggart and Delbridge, 2004). Second, the expectations of the contracting parties as expressed or implied in an objective manifestation of agreement are legally protected (Steyn, 1997). Manifestations “circumscribe a valuation of conduct” (Collins, 1999, p. 21) and give legal effect to business relationships (Cohen and McKendrick, 2005). Companies that breach their agreements are obliged to hand over the monetary equivalent of the promised performance. The usual method of enforcing business-to-business agreements is to exercise the right for compensation for losses caused by reliance on an agreement. The reason for this reliance-based liability (Atiyah, 1979) is the establishment of institutional rules that encourage inter-organizational reliance and thus promote and facilitate inter-organizational exchange. The law tries to prevent losses caused by reliance and discourage breaches of business agreements (Fuller and Perdue, 1936, 1937). Moreover, organizations are less likely to violate a negotiated agreement if the penalty for doing so is the payment of damages (Shapiro et al., 1992). Despite the distinct significance of the concept of reliance in business-to-business exchanges, there is a remarkable absence of marketing research on the subject. The main reason for this lack of relevant research is that the generic and all-encompassing use of the term trust has obscured the particularities and importance of reliance. Often the terms “trust” and “reliance” are used interchangeably by marketing scholars (Ganesan, 1994; Moorman et al., 1992, 1993; Schurr and Ozanne, 1985). For example, trust is described as an assured reliance on some person or thing in risky situations (Moorman et al., 1992; Frankel, 1977). For this reason, we need to discuss the difference between trust and reliance. Differentiating trust and reliance in business relationships One of the first serious attempts to distinguish between trust and reliance was undertaken by Hardin (1991). Looking at the essential difference between “trusting persons” and “trusting institutions”, he describes trust as an inherently moral quality. Hence “trustworthiness” is ascribed to a reciprocity that is motivated by character or

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morality rather than by interest. Reference to trust is relevant when it comes to trustworthiness, and speaking of reliance is justified when reciprocity is grounded in interest. Das and Teng (1998) attempt to capture similar distinctions in their discussion of trust and control in strategic alliances, and Hagen and Choe (1998) discuss the role of institutional sanctions in trust-induced relationships. Another attempt to differentiate between trust and reliance issues in business relationships was undertaken by Blois (1999). Evaluating the current lack of conceptual clarity, he explains that there is a difference between trusting someone and “relying on somebody to do something” (Blois, 1999, p. 199). Drawing on Baier’s (1986) and Misztal’s (1996) work, Blois (1999) demonstrates the distinction between the two concepts through the analytical characteristics of “search”, “experience” and “credence”. Reliance does not involve an emotive element; it involves a rational standard that circumscribes institutionalized rules of doing business. Reliance in business relationships does not depend on a stated commitment but is linked to the notions of “reasonable expectations” (Steyn, 1997), “positive outcome” (Anderson and Narus, 1990), and “proven capability” (Blois, 1999). Hence the rational standard of reliance differs from the notion of “organizational trust” (Barber, 1983; Granovetter, 1985; Mayer et al., 1995), “impersonal trust” or “system trust” which is the trust that individuals place in systems and institutions or the individual’s trust emanating from structural arrangements (Noteboom and Six, 2003). Contemporary studies attempted to stretch the concept of trust from inter-personal towards inter-organizational relationships (Zucker, 1986; Das and Teng, 2001). But one might challenge whether it is appropriate to apply the concept of trust to inter-organizational relationships (Anderson and Narus, 1990; Ring and Van de Ven, 1992; Zaheer and Venkatraman, 1995). Certainly, the existence of various forms of inter-organizational co-operation such as alliances, strategic partnerships between companies, business-to-business negotiation, as well as inter-firm contracts, make the concept appealing, and there are calls for an extension of the model of trust to both a group and an organizational level of analysis. It is argued, for example, that exchanges between organizations also include exchanges between individuals or groups of individuals (Barney and Hansen, 1994) and that people may develop a trust in organizations (Morgan and Hunt, 1994). Research in the areas of trust and commitment in strategic alliances, however, suggests the existence of a “structural binding” based on economic, strategic and organizational links, as well as “social bonding”, which involves affective and personal relationships (Rodriguez and Wilson, 2002). An unambiguous “conceptual clarity” would consequently require a clear distinction between the two forms of bonding. We therefore follow Noteboom and Six (2003) who, recognizing the cross-level controversy, posit that it is important to distinguish between personal trust and impersonal trust. For the former, trust is based on the person-to-person interaction, and is unique to each relationship. For impersonal trust, trust is based on the position (i.e. job title) within the organization, not the individual (Morris and Moberg, 1994). Furthermore, we build on Zaheer et al.’s (1998) endeavours to solve the inherent cross-level fallacy, by proposing a clear differentiation between “inter-personal trust” and “inter-organizational trust”. The former refers to “the extent of a[n] [. . .] agent’s trust in her counterpart in the partner’s organization” (Zaheer et al., 1998, p. 142). In other words, inter-personal trust is the trust placed by the individual in his or her individual opposite member, while inter-organizational trust is seen as “the

extent of trust placed in the partner organization by the members of a focal organization (Zaheer et al., 1998, p. 142). Towards a framework of trust and reliance in business relationships The relevant theoretical inputs from the two perspectives of “trust” and “reliance” are now used as conceptual dimensions in our attempt to move towards a framework of trust and reliance in business relationships (see Table I). Trust and reliance operate at different levels. Trust constitutes an emotive state (Simmel, 1950; Mo¨llering, 2001) that operates at an inter-personal level, while reliance sets a rational standard that operates at the inter-organizational level. By committing a cross-level fallacy the two concepts have become an integral part of very different relational contexts (Williamson, 1985; Lewicki et al., 2003). Trust is based on sentiments and behaviour, whereas reliance manifests itself in agreements and institutionalized forms of business interaction. Commitment on an inter-personal level can be juxtaposed with reasonable expectations on an inter-organizational level. Whilst trust is associated with the acceptance of dependency and risk, reliance introduces an institutionalized standard to reduce risks. Consequently, penalty-based sanctions that are enforceable exist in reliance structures, while on the other hand trust-based relationships do not have such rigorous mechanisms attached. Recognition of the difference between the inter-personal and inter-organizational levels constitutes a significant departure. Nevertheless, there is a need for three further conceptual developments of business relationships. First, there is a need to recognize that trust and reliance in business relationships rest on different conceptual bases (Blois, 1999). Second, we need to avoid the use of the words “trust” and “reliance” as synonymous marketing terms (Ganesan, 1994; Moorman et al., 1992). Third, we need to develop an integrative model of the multiplicity of trust and reliance dimensions in order to understand more fully the complexity of business relationships. Therefore, we posit that business relationships can be characterized by two dimensions that hitherto have been hidden behind the ecumenical construct of trust. First, business relationships depend on a variety of important interactions based on inter-personal trust (Ha˚kansson and Ford, 2002). Second, business relationships depend on the independent standard of inter-organizational reliance. Both are independent constructs. In contrast to the simplistic trust-mistrust concept of business Conceptual dimension

Trust

Reliance

Structural mode

Beliefs Sentiments Attitude Morality Emotions Inter-personal Commitment Dependency Vulnerability Risk Voluntary Unenforceable

Agreement Institutions Conduct Interest Rationality Inter-organizational Reasonable expectations Complementarities Certainty Calculability Penalties Enforceable

Basis of reciprocity Construct source Relationship level Relationship grounding Relational essence Sanctioning mechanism Enforceability

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Table I. Conceptual dimensions of trust and reliance

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relationships, we thus propose a conceptual framework that integrates inter-personal trust and inter-organizational reliance, and which captures four differing types of business relationships. As shown in Figure 1, we label these as being a “fragile relationship”, “expedient relationship”, “stable relationship” or “personal relationship”. A “fragile” business relationship is characterized by low inter-personal trust and low inter-organizational reliance. We term this relationship “fragile” as there is no “anchor” for the perpetuation of this relationship. It is tentative, and can easily be disrupted. An “expedient” relationship builds upon high levels of inter-organizational reliance between companies despite the low level or absence of inter-personal trust between individual members. Conversely, a business relationship may rest on a high inter-personal trust despite the absence or the low level of inter-organizational reliance. This may rest on just a few or, in an extreme case, just one dyadic “personal” relationship built on high levels of trust (e.g. between business managers) which provides the “logic” for the continuation of the relationship. In comparison, a “stable” relationship is built on both inter-personal trust and inter-organizational reliance, and therefore has manifold “anchor points”. Discussion and implications By defining and analysing carefully the domain and limitations of the emotive paradigm of “trust” and supplementing it with the rational standard of “reliance” in business relationships, we propose a framework that is applicable to business-to-business marketing. The theoretical framework informs better the cross-level fallacy between different levels of analysis and escapes the existing dichotomy of “trust” and “mistrust” in business relationships, especially as part of the implied correlation of these with relationship quality (Morgan and Hunt, 1994). Examining business relationships by the use of intellectual lenses of trust and reliance, we formulate three applicable theoretical propositions for further analysis. These propositions merit further research as they represent new perspectives on

Figure 1. Trust and reliance in business relationships

inter-organizational relationships. They also provide an alternative hypothesis that partly contradicts existing literature in the area of inter-organizational relationships. We thus state: P1.

Inter-personal trust is a relevant but not in itself sufficient condition for the development of sustainable business relationships.

It appears that inter-personal trust alone is an insufficient condition for the development of stable business relationships because it fails to capture the underlying interests and objectives of organizations. Consider the well-known case of Baird v. Marks and Spencer (Mellahi et al., 2002; Blois, 2003; Harrison, 2004). Following their declared business objective to restructure their sourcing policies and improve profitability, Marks and Spencer informed their supplier Baird that its current orders due for delivery would be the last, and that the business relationship would terminate at that point. Subsequently, supplier Baird, who hitherto trusted Marks and Spencer, sued their customer to obtain compensation for the cost of closing several production sites and for providing redundancy payments. In this case, pre-existing inter-personal trust, built over a 30-year relationship, was not by itself sufficient to sustain the relationship in the face of changing business objectives and interests. The trust issue in this case is whether Baird would renew or renegotiate a new relationship with Marks and Spencer for purely business reasons. For Baird, a renewal or renegotiation is most likely if they could either arrange a “watertight” contract or if they had a sufficiently diverse portfolio of clients to be able to risk the future loss of Marks and Spencer. If trust is broken or lost, then it is useful to consider the existence of the constituent parts of a relationship without trust. Therefore, we posit that business relationships can be developed despite the lack of inter-personal trust, purely based on reliance. This is related in our second proposition, which deals with a hitherto neglected group of inter-organizational relationships, i.e. expedient ones: P2.

Trust and reliance

Reliance is a necessary and sufficient condition for the development of expedient business relationships.

Expedient relationships demonstrate a high degree of symbiotic interdependence and co-operation without depending on inter-personal trust. They are also referred to in the literature as “interimistic” relationships (Lambe et al., 2000) or symbiotic arrangements (Schanze, 1998). This distinct class of expedient business relationships requires the creation of reliance through the existence of certain conditions, such as business objectives, contractual documents, absence of control via equity investment, conceptual links expressed in brands or design, relationship specific investments, as well as monitoring and sanctioning of contractual behaviour (Schanze, 1998). For example, the development of the Euro-fighter with cooperating cross-border firms is based on the building of reliance through contractual arrangements that are driven by governments who award contracts rather than direct trust between the various participants. Similarly, Sony excelled in consumer electronics by introducing a worldwide series of highly innovative products at competitive prices. Retailers co-operated with Sony despite the lack of inter-personal trust because they “relied” on the company’s proven capacity to continuously introduce innovative products which were demanded by consumers. The existence of expedient relationships calls for a

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review of existing “commitment-trust” based managerial literature on what to foster when developing business relationships. P3.

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Manifestations of consent contribute to an increased reliance in business relationships.

Manifestations of consent such as contracts (Barnett, 1986; Markovits, 2004), framework contracts or umbrella agreements (Collins, 1999; Mouzas, 2006) may provide a rational platform for the achievement of reliance in business relationships. They directly affect the characteristics of inter-organisational relationships and, while trust may or may not be a further outcome of their existence, increase the reliance of the exchange partners on each other and the relationship itself. Companies may also use more informal manifestations, such as letters, e-mails, minutes or personal interactions (Macauley, 1963; Roxenhall and Ghauri, 2004). Business relationships undeniably include personal interactions such as regular or periodic negotiations or business reviews. Personal interactions are valuable in creating inter-personal trust; one of the benefits of creating trust in a relationship is, for example, the reduced need for watertight contractual provisions. The increasing complexity of inter-organizational exchange relationships, however, makes the manifestation of business agreements indispensable. For example, the result of the annual negotiation between manufacturers and retailers includes listings of multiple brands and stock-keeping units, complex systems of trade allowances, prices and promotions at the point of sale. In such situations, the consent for these complex exchanges is manifested as an umbrella agreement between companies. Manifestations are also necessary for providing evidence for possible reliance losses and measuring the monetary value of damages (Cohen and McKendrick, 2005). The above theoretical propositions deviate from existing constructs of “mistrust”, “impersonal trust” and “organizational trust” and invite reflection on the domain and limitations of trust. They also draw attention to the contemporary forms of institutionalized and depersonalized “trust production” (Luhmann, 1979; Zucker, 1986). Consider the function of auditing firms that periodically review the accounts of a company’s marketing spending, the work of quality management people who systematically review marketing processes and certify them according to a set of standards or the stratified process of business-to-business contracting. The present study on trust and reliance in business relationships demonstrates that these practices move beyond the inter-personal sphere and institutionalize the production of inter-organizational reliance. Inter-organizational reliance is not institutionalized because of the lack of “trust” or the existence of “mistrust”; inter-organizational reliance is institutionalized in order to promote certainty and calculability in business relationships. Looking at the conceptual link between trust and reliance, further research may explore the mechanisms of producing certainty and calculability in business relationships. Developing the research agenda An agenda for further research in business-to-business marketing needs to include an investigation of how organizations deal with the inherent uncertainty in the particular context of business relationships, and how organizations develop and ensure the calculability and predictability of their business-to-business exchanges. The notion of

trust has been a central construct in business-to-business marketing, particularly in theories that describe and explain the quality of relationships (Dwyer et al., 1987), business-to-business co-operation (Young and Wilkinson, 1988; Ha˚kansson et al., 2004), relational contracting (Jeffries and Reed, 2000; Blois, 2003) and the creation of trustworthy managerial behaviour (Whitener et al., 1998). What deserves more attention is the investigation of two research problems. First, further investigation is needed to define rational standards of reliance in business-to-business marketing in order to counterbalance the existing conceptual focus on inter-personal trust. Second, research is needed on the empirical link between trust and reliance in business relationships. Let us discuss just two resultant research questions, starting first with reliance in business-to-business marketing. Since the “production” of reliance becomes institutionalized and depersonalized, research could be directed at how organizations ensure the achievement of inter-organizational reliance by negotiating, drafting and monitoring their business-to-business agreements. New forms of relational contracting (Bazerman and Gillespie, 1999) as well as “implicit” dimensions of discrete, relational and network contracts (Campbell et al., 2003) may motivate organizations to perform at or above contractually agreed levels, but we still know very little about the trust and reliance implications of these contracting forms. Can organizations codify the process of generating reliance? What is the role of external organizations such as auditing firms or quality assurance companies? The second research problem is concerned with the investigation of the link between trust and reliance in business relationships. This could be done by operationalizing inter-organizational reliance via the construct of “confidence intervals” as proposed by Smith (2001) and Marsh and Dibben (2005). Such an approach would provide a dynamic way of understanding the construct of reliance, which could also be directly linked to managerial actions as well as to contractual decisions. Does inter-organizational reliance create inter-personal trust? What are the mechanisms to move beyond personal trust? An answer to these research questions might be given by investigating the manifestations of managerial cognition. Further research in this area could provide an answer to the link between “emotions” and “rationale”, and “commitment” and “proven capacity” and in doing so would enrich our understanding of business relationships. Conclusion While trust has received significant research attention in business-to-business marketing, far less attention has been paid to the rational standard of reliance and the inherent link between trust and reliance in business relationships. The present article has demonstrated that trust in business-to-business marketing is a multifaceted construct that needs conceptual clarification. As an emotive paradigm it is applicable to inter-personal relationships. Business relationships, however, comprise inter-personal and inter-organizational relationships, and therefore this paper proposes a conceptual framework that adds a rational standard applicable to inter-organizational relationships, namely that of reliance. We show that through the introduction of this additional dimension we overcome the cross-level fallacy hampering research on business relationships. Furthermore, we posit future research directions that should exploit this multi-faceted construct, linking it with the new concept of “interimistic” or “expedient” relationships, and so enrich our understanding

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Williamson, O.E. (1975), Markets and Hierarchies, The Free Press, New York, NY. Williamson, O.E. (1985), The Economic Institutions of Capitalism, The Free Press, New York, NY. Young, L.C. and Wilkinson, I.F. (1988), “The role of trust and cooperation in marketing channels: a preliminary study”, European Journal of Marketing, Vol. 23, pp. 109-22. Zaheer, A. and Venkatraman, N. (1995), “Relational governance as an interorganisational strategy: an empirical test of the role of trust in economic exchange”, Strategic Management Journal, Vol. 16, pp. 373-92. Zaheer, A., McEvily, B. and Perrone, V. (1998), “Does trust matter? Exploring the effects of interorganizational and interpersonal trust on performance”, Organization Science, Vol. 9 No. 2, pp. 141-59. Zucker, L.G. (1986), “Production of trust: institutional sources of economic structure”, Research in Organizational Behavior, Vol. 8, pp. 53-111. About the authors Stefanos Mouzas is Senior Lecturer in Marketing at the Lancaster University Management School, UK. He received his PhD in Marketing from Lancaster University, Management School, UK. His publications and research interests lie in the area of B2B marketing, inter-firm negotiations and business contracts. Stephan Henneberg is Senior Lecturer in Marketing at Manchester Business School, University of Manchester, UK. He obtained his PhD in Marketing from the Judge Institute of Management, University of Cambridge. His current research interests are in the areas of strategic marketing, relational marketing, consumer behaviour, strategic competences, and social and political marketing. Peter Naude´ is Professor of Marketing at Manchester Business School, Manchester University, UK. He gained his PhD in Marketing from the University of Manchester. His research interests are in quantitative modelling and B2B marketing. Peter Naude´ is the corresponding author and be contacted at: [email protected]

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Explaining buyers’ responses to sellers’ violation of trust

Buyers’ responses to sellers’ violation of trust

Sijun Wang Department of International Business and Marketing, California State Polytechnic University, Pomona, California, USA, and

Lenard C. Huff Brigham Young University – Hawaii, Laie, Hawaii, USA

1033 Received November 2005 Revised November 2006 Accepted March 2007

Abstract Purpose – This study seeks to explain a buyer’s response to a seller’s violation of trust. Four negative responses (decline in trust, negative emotions, negative word-of-mouth (WOM) and reduction in repurchase intentions) and four explanatory variables (magnitude of violation, integrity versus capability-based cause of failure, perceived likelihood of repeated violations and stage of trust prior to the violation) were identified. The study develops and tests hypotheses regarding the possible influence of the explanatory variables on each of the four negative responses. Design/methodology/approach – An experiment was conducted in which business professionals were given one of 16 scenarios, varied by levels of the four explanatory variables, describing a violation of trust in a business-to-business service situation. Respondents were asked questions regarding their probable response. Four-way ANCOVA was used to analyze the results. Findings – The study finds that stage of trust and perceived likelihood of repeated violation had significant main effects on decline in trust, negative WOM and repurchase intentions. Integrity-based attribution influenced decline in trust, but magnitude of violation had no main effects. Three significant interactions were found. Research limitations/implications – Findings show the importance of first impressions and reputation. Care should be taken to assure customers that violations will not be repeated. A major limitation was that scenarios cannot induce the same intensity of thought and emotion that real situations do. Originality/value – Despite extensive literature in service failure and recovery, this is perhaps the first study to rigorously examine and seek to explain a buyer’s response to a seller’s violation of trust. Keywords Trust, Buyer-seller relationships, Service failures Paper type Research paper

For sellers, it is crucial to win a buyer’s trust, then nurture it over the course of a relationship. Trust enables the buyer to economize cognitive and emotional energy and rely on a seller before extensive information can be gathered (Luhmann, 1979; Jones and George, 1998; Yamagishi, 2002; Mayer et al., 1995). As trust matures, the buyer identifies with (Lewicki and Bunker, 1995) and feels affection and devotion for the seller (McAllister, 1995). Trust is therefore strongly linked to buyer commitment (Moorman et al., 1992) and loyalty (Morgan and Hunt, 1994). Yet, despite a seller’s best efforts to win and keep a buyer’s trust, perceived violations of trust will invariably occur (Robinson and Rousseau, 1994). The extent to which these violations damage the seller will depend on the buyer’s cognitive, The two authors have equally contributed to the paper.

European Journal of Marketing Vol. 41 No. 9/10, 2007 pp. 1033-1052 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560710773336

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emotional and behavioral response to the violation. How intensely the buyer responds will depend on a number of factors, including the extent of the violation, the perceived cause of the violation and the stage to which trust had developed prior to the violation. When violations occur, the marketer will need to know what recovery efforts will be most effective if they are necessary. The most effective road to recovery begins with an understanding of the customer’s response to the violation and the factors that lead to it. This study focuses on this first step toward trust restoration: understanding the nature of the customer’s response to a trust violation. We begin with a brief description of the nature of trust, then describe trust violations and possible buyer responses. We then identify four factors that may influence buyers’ perceptions of and response to trust violations. Hypotheses are introduced, then tested using an experiment involving business professionals from a large metropolitan area in the Western USA.

Background The nature and development of trust A buyer’s trust in a seller is defined as “the willingness to rely on the seller in a situation of uncertainty, based on confident expectations that the seller will satisfactorily perform a specific action important to the buyer”. As defined, trust involves both trusting beliefs and trusting intentions (Lewicki et al., 1998; Whitener et al., 1998; Mayer et al., 1995; Moorman et al., 1992; Doney et al., 1998). Uncertainty and vulnerability are central to the conceptualization of trust (Bhattacharya et al., 1998; Das and Teng, 1998). Trust involves both cognition and emotion. To be valid, trust must be based on a cognitive assessment of the likelihood that the seller will benefit the buyer (Kramer, 1999; Robinson, 1996), based on an assessment of both the characteristics and incentives of the seller (Mayer et al., 1995; Morgan and Hunt, 1994; Hardin, 1993): there must be reason to believe (Dasgupta, 1988). Emotions are also an important part of the experience of trust (Lewis and Weigert, 1985; Jones and George, 1998; McAllister, 1995), and serve as signals that trigger cognitive reassessments of trust (Jones and George, 1998). The buyer’s propensity to trust can influence the level of trust (Mayer et al., 1995). Personality-based researchers argue that individuals have different propensities to trust (Rotter, 1967) based on their native personalities combined with the environment and life experiences they have been exposed to (Bowlby, 1982; Erikson, 1968). The nature of trust changes as a relationship matures. Trust in the early stages is primarily transference and calculus-based (Lewicki and Bunker, 1995, 1996; Doney and Cannon, 1997; McKnight et al., 1998), depending largely on information from trusted third parties, the strength of institutions that govern the relationship and calculations based on categorical processing (McKnight et al., 1998). It is therefore quite fragile. Over time, trust matures through a series of iterations in which the seller acts in the buyer’s behalf and the buyer responds cognitively, emotionally and behaviorally. Trust becomes more knowledge-based and sometimes evolves to what has been termed identification-based (Lewicki and Bunker, 1995, 1996) or affect-based trust (McAllister, 1995), in which the buyer commits to and develops emotional ties to the seller. Mature trust is therefore more robust and resilient (Droege et al., 2003).

Violations of trust and buyer’s response to violations A seller’s violation of trust occurs when the buyer perceives evidence that the seller failed to meet the buyer’s confident expectations (Tomlinson et al., 2004). Note that seller failure and violation of trust are different – but closely related – concepts. Violations of trust between a buyer and seller can be likened to violations of the psychological contract between an employer and employees (e.g. Robinson and Rousseau, 1994; Robinson, 1996; Morrison and Robinson, 1997). A violation of trust occurs when the buyer perceives that the seller’s failure violated a psychological contract between the seller and the buyer. A violation of trust, then, begins with seller failure, but is not complete until the buyer has examined the failure and deemed it a violation of trust. Trust violations trigger cognitive, emotional and behavioral reactions. Cognitively, trust is reduced (Robinson and Rousseau, 1994) and needs to be repaired (Kim et al., 2004). Emotionally, buyers may experience anger, hurt, fear and frustration (Lewicki and Bunker, 1996). These changes in trusting beliefs and emotions should also influence buyers’ intentions and behavior (Fishbein and Ajzen, 1975; Ajzen, 1991; Merugini and Bagozzi, 2001), such as the intent to repurchase from the seller or to spread negative word-of-mouth (WOM) (Brown and Beltramini, 1989). Factors that influence the buyer’s response Based on a review of relevant literature, we identify four factors that may influence the extent to which buyers’ trust, emotions, repurchase intentions and WOM activity are affected by a seller’s violation of trust. The first is the magnitude of the violation (Lewicki and Bunker, 1996). Jones and George (1998) maintained that the magnitude of the perceived violation is the key contingency in determining whether trust shifts from unconditional to conditional trust, or to distrust. Smith et al. (1999) found that the greater the loss, the greater the decline in trust and the more intense the negative emotions. The magnitude of a violation has also been found to increase the level of negative word of mouth (Richins, 1983; Brown and Beltramini, 1989). When responding to a violation, the buyer typically evaluates and attributes causes for the violation (Folkes et al., 1987; Bettman, 1979; Richins, 1983; Valle and Wallendorf, 1977; Folkes, 1984, 1988). When studying the effects of attribution on repurchase and complaining for airline failures, Folkes et al. (1987) focused on two types of attribution: (1) controllability; and (2) stability. Controllability deals with the perception that the violator could have controlled the outcome. Trust declines more severely (Lewicki and Bunker, 1996), negative emotions are more intense (Folkes, 1984), and buyers behave more punitively (Hamilton, 1980) when they believe that the seller had the ability to do otherwise, but chose not to, than when they did not have the ability to do otherwise, or when external forces caused the failure (Folkes et al., 1987). Related to perceived controllability, the buyer determines which attribute of the seller’s trustworthiness has failed. Scholars have identified a number of trustworthy attributes, which are often reduced to capability and integrity. Capability refers to whether the seller has the skills and resources necessary to perform a specific act to the

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buyer’s satisfaction. Integrity involves honesty, keeping promises, being true to noble standards (Mayer et al., 1995) and not acting opportunistically when presented with favorable incentives to violate trust (Hardin, 1993, 2002). We argue that buyers will react more negatively when they determine that sellers demonstrate lack of integrity, than lack of capability. If they lack capability, the buyer may attribute the failure to factors out of the seller’s control. On the other hand, when lack of integrity is perceived, the buyer will more likely believe that the seller had the ability to do otherwise, but, acting on his or her own volition, intentionally harmed the buyer. Researchers have also found that there may be some inherent differences in the way people assess positive versus negative information about capability versus integrity (Kim et al., 2004; Snyder and Stukas, 1999). Studies suggest that individuals tend to weigh positive information more heavily than negative information about capability, but tend to weigh negative information more heavily than positive information about integrity (Kim et al., 2004; Madon et al., 1997; Martijn et al., 1992; Reeder and Brewer, 1979). This implies that individuals place more weight on perceived lack of integrity than perceived lack of capability when faced with a violation of trust. In addition to controllability, buyers determine whether the cause of the violation is stable or unstable. If stable, the buyer assumes that the cause will be repeated. If unstable, the buyer determines that the cause was temporary. The degree to which one predicts that a violation will be repeated should influence trust since one’s confidence that the seller will meet future expectations should decrease. In addition, Weiner et al. (1982) found that stable causes increase such negative emotions as anger more than temporary causes (Folkes et al., 1987). Folkes (1984) also found that an attribution of stability leads to a decrease in repurchase intentions (Folkes et al., 1987). Another factor that may influence a buyer’s response to a seller’s violation is the maturity of the trust the buyer had developed prior to the violation. As discussed, trust in the early stages of development is fragile because of the tentative and assumption-based nature of its antecedents (Kim et al., 2004), such as recommendations from third-party sources, legal or social sanctions and cues that confirm previous stereotypes. It has also been found that the more mature the trust prior to a violation, the less vigilant the buyer will be and the more forgiving to possible violations of trust. This is manifest in a number of ways. Both Morrison and Robinson (1997) and Forrester and Maute (2001) argue that the more mature the trust, the more likely that the violation will be attributed to external, or extenuating circumstances, rather than to the violator. Forrester and Maute (2001) also argue that if blame is attributed to the violator, which is more likely early in the relationship, then anger, the likelihood of exit and negative word-of-mouth will be greater. Buyers have also invested more in mature relationships and will seek information that confirms high trust and discount information that implies low trust to protect their psychological investment (Robinson, 1996). In summary, based on previous research we have identified four factors that may influence a buyer’s response to trust violations. As discussed, all else being equal, high magnitude of violation, an attribution that lack of integrity caused the violation, high perceived likelihood of violation reoccurrence and early trust development should lead to higher declines of trust, more intense negative emotions, more negative WOM and lower repurchase intention. Based on this, we propose the following hypotheses regarding how each of the buyer responses to a trust violation should be affected by each of the influencing factors (i.e. magnitude of the violation, lack of integrity versus

lack of capability, likelihood of repeated violations, and stage of trust prior to the violation): H1. The buyer will experience a greater decline of trust if: (a) the magnitude of the violation is high; (b) lack of integrity, rather than lack of capability, is the attributed cause; (c) the perceived likelihood of future violations is high; and (d) trust was in the early stages of development prior to the violation. H2. The buyer will experience stronger negative emotions if: (a) the magnitude of the violation is high; (b) lack of integrity, rather than lack of capability, is the attributed cause; (c) the perceived likelihood of future violations is high; and (d) trust was in the early stages of development prior to the violation. H3. The likelihood that the buyer will engage in negative word-of-mouth will be higher if: (a) the magnitude of the violation is high; (b) lack of integrity, rather than lack of capability, is the attributed cause; (c) the perceived likelihood of future violations is high; and (d) trust was in the early stages of development prior to the violation. H4. The likelihood that the buyer will purchase from the seller in the future will be lower if: (a) the magnitude of the violation is high; (b) lack of integrity, rather than lack of capability, is the attributed cause; (c) the perceived likelihood of future violations is high; and (d) trust was in the early stages of development prior to the violation. In addition to the main effects of the four influencing variables, we are interested in possible interaction effects. To our knowledge, no literature has sought to explain possible interactions involving our four focus variables and their influence on buyers’ response to trust violations. Therefore, for exploratory purposes, we will hypothesize and test the null hypothesis that: H5. There will be no interactions among the four influential factors (i.e. the magnitude, integrity versus capability attribution, likelihood of re-occurrence of a trust violation, and the stage of trust development) for customers’ responses, including (a) the decline in trust; (b) intensity of negative emotions; (c) likelihood of negative word-of-mouth; and (d) repurchase intention. Methodology The study To test these hypotheses, we used a 24 between-subject experimental design with two levels for each of the four factors hypothesized to influence buyer response: (1) magnitude of the violation (low or high); (2) attribution of the dimension of trustworthiness responsible for the violation (capability or integrity); (3) likelihood of future violations (low or high); and (4) stage of trust development prior to the violation (early or mature). Respondents were asked to take the role of the owner of an Oriental restaurant who sought the services of a printing service to prepare printed marketing materials for a

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big grand opening. A gender-neutral name – Lynn’s Printing Company – was used for the printing service (Tomlinson et al., 2004). Such a role-playing technique has been used frequently in marketing research (e.g. McCollough et al., 2000; Smith et al., 1999). Each respondent was given one of 16 scenarios in which the printing company violated the restaurant owner’s trust. Each scenario represented a unique combination of levels of the four manipulated independent variables. Respondents were first given a description of the situation and the level of trust that had been developed before the violation, then were asked to indicate the degree of trust they would have for the printing company. They were then given a description of the violation, which varied across scenarios, and were asked a number of questions measuring their response to the violation. The basic scenario and manipulations for each of the focal independent variables are set forth in the Appendix. A total of 390 business professionals were recruited by 75 student assistants from a Western University. Specific instructions concerning participant qualifications were given to reduce error in the data collection process. Students were recruited to serve as data collectors, a technique used successfully in a variety of services marketing studies (e.g. Hennig-Thurau et al., 2002; Bitner et al., 1990; Gwinner et al., 1998). Respondents were randomly assigned to one of the 16 scenarios and special care was given to assure roughly equal sample size for each scenario[1]. Of our respondents, 54.6 percent were male, and 63.8 percent of them had a household income of at least $50,000. Our typical respondents were in their thirties (on average 34.2 years old), educated (65.5 percent of them had a college education), and had sufficient working experience (an average of 12.8 years) to engage in role-playing as business owners. We also had a “balanced” race composite of respondents (45 percent Americans, 33.8 percent White Americans, and 17.4 percent Latino/Hispanic Americans). Measures of buyer responses The four buyer responses – decline in trusting beliefs, intensity of negative emotions, negative word-of-mouth and repurchase intention – were measured as outlined below (see Table I for specific items in the scales). Decline in trusting beliefs. A four-item scale was used to measure decline in trusting beliefs. Questions were designed to measure respondents’ decline in their belief regarding the seller’s capability, benevolence and integrity, as well as their overall belief that the respondent is trustworthy. The scale has a reliability alpha of 0.88. Intensity of negative emotions. Respondents assessed the degree to which they would feel anger, shock, irritation (from Richins, 1997), regret, and betrayal. This scale has a reliability alpha of 0.83. Negative word-of-mouth. Three items were adopted from Blodgett et al. (1993). The resulting scale has a reliability alpha of 0.90. Repurchase intention. A single item was used to measure the likelihood of the customers’ future repurchase intention. Covariates We added a number of control variables, or covariates, to the analysis, including gender, age, race, income, education, years of work experience and two characteristics of the buyer’s personality: propensity to trust and propensity to forgive. Propensity to trust has been shown to positively influence trust (Mayer et al., 1995), particularly in

Trust prior to the violation (three items) (Cronbach’s a ¼ 0:92) Anchors: strongly disagree (1), strongly agree (7) 1. I would believe that Lynn’s Printing Company has the expertise necessary to provide excellent service 2. I would believe that Lynn’s would keep its promises 3. I would trust in Lynn’s Decline in trust (four items) (Cronbach’s a ¼ 0:88) Anchors: strongly disagree (1), strongly agree (7) 1. My belief that Lynn’s would place my interests above its own would significantly decline 2. My belief that Lynn’s has the expertise or capacity necessary to provide excellent service would significantly decline 3. My belief that Lynn’s will keep its promises would significantly decline 4. My overall trust in Lynn’s Printing Company would significantly decline

Buyers’ responses to sellers’ violation of trust 1039

Negative emotions (five items) (Cronbach’s a ¼ 0:83) Anchors: strongly disagree (1), strongly agree (7) 1. I would feel very angry 2. I would feel regret 3. I would feel betrayed 4. I would feel shocked 5. I would feel irritated Negative WOM (three items) (Cronbach’s a ¼ 0:90) Anchors: very unlikely (1), very likely (7) If this problem had really happened to you, how likely would you be to . . . . . . warn others not to do business with Lynn’s . . . speak negatively about Lynn’s to your friends . . . tell your friends and relatives not to do business with Lynn’s Repurchase intention (one item) Anchors: very unlikely (1), very likely (7) 1. If this problem had really happened to you, how likely would you be to continue doing business with Lynn’s in the future? Customer propensity to trust (three items) (Cronbach’s a ¼ 0:91) Anchors: strongly disagree (1), strongly agree (7) 1. Most people are trustworthy 2. Most people can be relied upon to tell the truth 3. In general, people can be trusted to do what they say they will do Propensity to forgive (five items) (Cronbach’s a ¼ 0:87) Anchors: strongly disagree (1), strongly agree (7) 1. I can forgive easily even if the consequences of harm have not been canceled 2. I can easily forgive even when the offender has not apologized 3. I can truly forgive even if the offender did harm intentionally 4. I can truly forgive even if the consequences of harm are serious 5. I can truly forgive even when the offender has not begged for forgiveness Manipulations checks Magnitude of trust violation I would think that I suffered a major loss due to Lynn’s failure Attribution of trust violation I would believe that Lynn’s failed to deliver my order because they were trying to fulfill more profitable orders Likelihood of reoccurrence I would believe that this kind of problem WILL happen again in the future

Table I. Measures of constructs in this study

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the early stages of development (McKnight et al., 1998). Extending this to changes in trust due to a trust violation, propensity to trust should influence the way in which a buyer views a violation and could therefore influence the buyer’s response. McCullough et al. (1997, p. 321) define forgiving as “a motivational transformation that inclines people to inhibit relationship-destructive responses and to behave constructively toward someone who has behaved destructively toward them”. With forgiveness, one acknowledges that a violation occurred, and may even have an accurate assessment of the magnitude and causes of the violation. As Kurzynski (1998) emphasizes, forgiveness is not overlooking, condoning or justifying a violation. Forgiveness is a process of overcoming negative beliefs and emotions, then moving toward reconciliation. Propensity to forgive is likely related to propensity to trust, yet they are independent concepts. Propensity to trust primarily influences the way we view the violation. Propensity to forgive influences the way we respond to it. Propensity to trust and propensity to forgive were measured as detailed below (also see Table I). Propensity to trust. For the sake of parsimony, only three items from a pre-established scale developed by Gefen (2000) were used to measure propensity to trust. The reliability alpha was 0.91. Propensity to forgive. Five items were taken from a forgiveness questionnaire developed by Mullet et al. (1998), who identified three factors. We used the five items that loaded most heavily onto “forgiveness versus revenge”: the factor that best represents propensity to trust (Mullet et al., 2003). The composite of the five items has a reliability alpha of 0.87. Manipulation checks and confounding checks A paper-and-pencil pretest was first conducted with 89 undergraduate business students to ensure the effectiveness of the manipulations. Based on this pretest, manipulations were fine-tuned for the main study. Items used in the main study for the manipulation are reported in Table I along with their Cronbach’s alphas where relevant. We conducted manipulation checks for all four variables (Perdue and Summers, 1986). Results indicated successful manipulation for all variables: respondents role-playing the mature stage of trust in the seller reported higher levels of initial trust than those role-playing the earlier trust stage (X
mature stage ¼ 6:17 versus X
earlier stage ¼ 5:21, Fð1; 381Þ ¼ 77:73, p , 0:001); respondents assigned to the high level of magnitude of violation believed the business loss is bigger than those assigned to the low level of magnitude of violation (X
high magnitude ¼ 5:92 versus X
low magnitude ¼ 5:55, Fð1; 380Þ ¼ 6:62, p ¼ 0:01); respondents assigned to the integrity-based violation reported higher degree of agreement with the statement “Lynn’s failed to deliver my order because they were trying to fulfill more profitable orders” than those assigned to the capability-based violation (X
integrity-based ¼ 6:25 versus X
capacity-based ¼ 5:52, Fð1; 381Þ ¼ 29:55, p , 0:001); and, respondents assigned to the high level of likelihood of future violation incidents reported a higher degree of agreeing with the statement “This kind of problem will happen again in the future” than those assigned to the low level of likelihood (X
high likelihood ¼ 5:70 versus X
low likelihood ¼ 5:28, Fð1; 383Þ ¼ 7:85, p ¼ 0:005).

In order to ensure that the hypothetical scenarios were perceived as “believable”, we also examined how realistic it was for the respondents to imagine themselves as the buyer (i.e. the business owner) in the scenario. On a seven-point scale (with seven indicating most realistic), the mean rating was 6.26, indicating that respondents considered the scenarios highly realistic.

Buyers’ responses to sellers’ violation of trust

Analyses and results H1-H4 were tested using a set of four-way ANCOVA analyses with the decline in trust, negative emotions, negative WOM, and repurchase intention included as dependent variables, and the four manipulated variables (magnitude, integrity versus capability attribution, likelihood of future violations, and stage of trust development) included as independent variables. We also use four-way ANCOVA to detect potential interaction effects. In addition, we treated several key demographic variables, as well as propensity to trust and propensity to forgive as covariates in our analysis. Table II sets forth the results of our analyses.

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Decline in trust H1a-H1d address the impacts of the four independent variables on the decline in trust. As shown in Table II, H1b, H1c, and H1d were supported. The linear contrast for the comparison of means for decline in trust are significant across the integrity- versus capacity-based attribution ( X
integrity-based ¼ 5:80 versus X
capacity-based ¼ 5:49, Fð1; 386Þ ¼ 5:33, p ¼ 0:021, v 2 ¼ 0:019), indicating that trust declines more deeply when customers face integrity-based trust (H1b). The mean comparisons of decline in trust across the high/low likelihood groups are significant (X
high likelihood ¼ 5:94 versus X
low likelihood ¼ 5:32, Fð1; 386Þ ¼ 22:26, p , 0:001), indicating that the more likely the buyer feels trust will be violated in the future, the greater the decline in trust (H1c). Similarly, the less mature the development of trust prior to the violation, the stronger the decline in trust after a violation (X
mature stage ¼ 5:82 versus X
earlier stage ¼ 5:43, Fð1; 386Þ ¼ 8:41, p ¼ 0:004). In contrast, the impact of magnitude of trust violation on decline in trust was not supported as indicated in H1a (Fð1; 386Þ ¼ 0:033, p ¼ 0:86). We did find a strong interaction effect between the magnitude and the likelihood of re-occurrence of the trust violation (see Figure 1). Specifically, we found that when the magnitude of trust violation is low, the decline in trust will be greater for buyers who predict high rather than low likelihood of violation re-occurrence (X
high likelihood ¼ 6:08 versus X
low likelihood ¼ 4:98, Fð1; 386Þ ¼ 22:26, p , 0:001) while the beliefs of high/low likelihood of re-occurrence of trust violation made no difference when the magnitude of trust violation is high. Thus, H5a was not supported. Negative emotions H2a-H2d predict the impacts of the four independent variables on the intensity of negative emotions. As shown in Table II, no main effects were found in our data, indicating no supportive evidence for H2a-H2d. However, we found two strong interaction effects, leading to no support for H5b (see Figures 2 and 3). Specifically, we found that when customers have less mature trust in the seller, the integrity-based trust violation leads to more intense negative emotions than the capability-based violation (X
integrity-based ¼ 5:70 versus X
capacity-based ¼ 5:26, Fð1; 386Þ ¼ 5:36, p ¼ 0:021,

Table II. ANCOVA results 0.013 9.32 2.85 3.12 0.235 2.89 0.035 3.24 1.52 0.94 0.39 3.15 1.61 0.072 0.56 0.049 0.32 0.037 19

Two-way interactions AB AC AD BC BD CD

Three-way interactionsa ABC ABD ACD BCD

Co-variates Trust propensity Propensity to forgive Gender Age Race Income Education Working experience R 2 (percent) 0.54 0.077 0.21 0.80 0.45 0.82 0.57 0.85

0.852 0.073 0.22 0.33

0.91 0.003 * * 0.093 0.079 0.628 0.09

0.26 0.027 * , 0.001 * * * 0.003 * *

10.71 32.40 2.15 0.017 2.80 0.81 6.66 0.036 22

1.43 1.36 1.09 0.000

1.37 0.53 3.29 0.11 5.36 6.88

0.96 0.75 0.79 0.14

, 0.001 * * * , 0.001 * * * 0.14 0.90 0.095 0.37 0.10 0.85

0.23 0.25 0.30 0.997

0.24 0.47 0.071 0.75 0.021 * 0.009 * *

0.33 0.39 0.38 0.71

Negative emotion F p value

0.23 22.96 0.27 1.10 3.48 0.17 0.25 0.17 29

0.000 0.21 0.001 1.23

1.66 0.36 1.63 2.08 0.072 0.12

0.63 , 0.001 * * * 0.61 0.30 0.063 0.68 0.62 0.68

0.98 0.65 0.98 0.27

0.20 0.55 0.20 0.15 0.79 0.11

0.92 0.34 0.001 * * * , 0.001 * * *

Negative WOM p value

0.011 0.92 10.46 30.21

F

0.57 21.88 1.41 1.25 0.50 0.81 0.013 2.92 26

0.44 0.86 0.26 0.33

0.41 2.25 1.22 1.16 0.33 0.34

0.30 2.27 17.63 22.78

0.45 ,0.001 * * * 0.24 0.26 0.48 0.37 0.91 0.089

0.51 0.35 0.61 0.57

0.52 0.14 0.27 0.28 0.57 0.56

0.58 0.13 ,0.001 * * * ,0.001 * * *

Repurchase intention F p value

Notes: aGiven the number of respondents per cell (some cells had less than 24.2, the minimum required cell size) we did not run four-way interactions; *significant at p , 0:05; * *significant at p , 0:01; * * *significant at p , 0:001

1.28 4.97 15.00 9.05

Decline in trust p value

Magnitude of trust violation (A) Attribution of trust violation (B) Likelihood of reoccurrence (C) Stage of trust prior to violation (D)

F

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Independent variables Main effects

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Buyers’ responses to sellers’ violation of trust 1043 Figure 1. Interaction effect of magnitude and likelihood of reoccurrence on decline in trust

Figure 2. Interaction effect of stage and attribution on negative emotions

Figure 3. Interaction effect of stage and likelihood of reoccurrence on negative emotions

v 2 ¼ 0:020). But when customers have more mature trust in the seller, the attribution difference (i.e., integrity- versus capability-based violation) makes no difference in customers’ emotional reactions. We also found interaction between stage of trust prior to the violation and the likelihood of future reoccurrence. When customers have more mature trust in the seller, high perceived likelihood of violation reoccurrence leads to more intense negative emotions than low perceived likelihood of reoccurrence ( X
high likelihood ¼ 5:77 versus X
low likelihood ¼ 5:29, Fð1; 386Þ ¼ 6:88, p ¼ 0:009,

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v 2 ¼ 0:026) while the beliefs of high/low likelihood of re-occurrence of trust violation made no difference when customers have less mature trust to begin with. Negative WOM H3a-H3d address the impacts of the four factors on negative word-of-mouth. As shown in Table II, H3c and H3d were supported. The mean comparisons of negative WOM across the high/low likelihood groups are significant (X
high likelihood ¼ 4:80 versus X
low likelihood ¼ 4:36, Fð1; 386Þ ¼ 6:66, p ¼ 0:01, v 2 ¼ 0:039), indicating customers who believed that similar trust violation incidents may be more likely to happen in the future will more likely engage in negative WOM than those who believed lower likelihood (H3c). Similarly, customers with less mature trust prior to the violation will more likely engage in negative WOM after the violation than those with more mature prior trust (X
mature stage ¼ 3:97 versus X
earlier stage ¼ 5:15, Fð1; 386Þ ¼ 53:00, p , 0:001). No significant interaction effects were detected, supporting H5c. Repurchase intention H4a-H4d address the impacts of the four influencing factors on repurchase intention. As shown in Table II, H4c and H4d were supported: the mean comparisons of repurchase intention across the high/low likelihood groups are significant ( X
high likelihood ¼ 2:44 versus X
low likelihood ¼ 3:16, Fð1; 383Þ ¼ 19:14, p , 0:001, v 2 ¼ 0:065), indicating customers who predicted similar trust violation incidents in the future will less likely repurchase from the seller than those who believed lower likelihood (H4c) and customers who have less mature trust in the seller will less likely repurchase from the seller after the violation than those with more mature trust ( X
mature stage ¼ 3:31 versus X
earlier stage ¼ 2:32, Fð1; 383Þ ¼ 39:01, p , 0:001). No significant interaction effects were detected, supporting H5d. Covariates Gender, age, race, income, education and years of working experience had no significant influence on any of the measures of response. On the other hand, propensity to trust and propensity to forgive did have significant effects on some of the variables. Interestingly, negative emotions are stronger for individuals with higher propensity to trust (b ¼ 0:195, p , 0:001, v 2 ¼ 0:040) but weaker for individuals with higher propensity to forgive (b ¼ 20:297, p , 0:001, v 2 ¼ 0:112). In addition, individuals with higher propensity to forgive expressed less intention to engage in negative WOM (b ¼ 20:352, p , 0:001, v 2 ¼ 0:082) and greater repurchase intention (b ¼ 0:32, p , 0:001, v 2 ¼ 0:079). Discussion In this study, we seek to explain a buyer’s response to a seller’s violations of trust. We proposed that when buyers perceive a violation of trust, they respond cognitively, emotionally, and behaviorally through declines in trust, more intense negative emotions, increased negative WOM and lower repurchase intentions. The extent to which these negative responses occur depends on a number of factors. We focused on four: (1) the magnitude of the violation; (2) the buyer’s attribution of the cause of the violation (lack of integrity or lack of capability);

(3) the perceived likelihood that the violation will be repeated; and (4) the stage to which trust had developed prior to the violation. Specifically, we hypothesized that high magnitude, perceived lack of integrity, high perceived likelihood of repeated violation and early stage of trust development would lead to a decline in trust, more intense negative emotions, greater likelihood of spreading negative WOM, and lower intention to repurchase. Based on an experiment involving business professionals playing the role of a business owner faced with a trust violation, many hypotheses were supported, but many were not. Given both prior research and intuition, it was surprising to find that the magnitude of the violation had no significant main effect on any of the negative buyer responses. We see three alternative explanations for this. The first is methodological. Perhaps with an experiment based on hypothetical scenarios, respondents, although recognizing the difference in magnitude of violation, may not internalize that difference enough to have an effect on response. The second is that it may be true that, at least with the type of business-to-business transaction involved in our scenario, magnitude of violation has less impact on negative buyer response than some other variables. The magnitude of violation would likely be considered an outcome failure (did I get my money’s worth?), rather than a process failure (did they treat me well?). Research has found that individuals respond more passionately to process failures than outcome failures (Smith et al., 1999). The third is that variation in magnitude does not matter: negative responses to trust violations are just as likely and severe with small violations as with major breaches. If so, this has major implications for firms and illustrates the need to avoid violations of any kind. Although there may be some truth to this, we expect that the influence of magnitude on the buyer’s response to the violation depends on other factors. For example, as shown in Figure 1, magnitude does influence the decline in trust when the expectation of future occurrences of the violation is low. When expectations of future occurrences are high, however, variation in magnitude does not matter because the buyer will likely not trust the seller regardless of the magnitude of the current violation. The results suggest that the perceived likelihood of reoccurrence and the stage of trust prior to the violation have a significant impact on buyer response. They each had strong effects (p , 0:003 or lower) on decline in trust, negative WOM and repurchase intentions. For managers, this indicates that special care should be made to assure the buyer that the violation is an isolated incident. Perhaps warranties or guarantees can provide assurance that if something does go wrong in the future, the buyer will be compensated, though that does not necessarily indicate that the problem will not reoccur. A more important step is an aggressive and effective recovery effort. However, studies have found that while one effective recovery can minimize the negative effects of a violation, and sometimes even improve the buyer’s evaluation of the seller, a repeated violation leads to a significant decline and a lower chance of restoring positive buyer evaluations (Maxham and Netemeyer, 2002). Therefore, nothing can substitute for good, consistent, vigilant management that genuinely reduces the likelihood of failure. As hypothesized, with the exception of negative emotions, buyers in the early stages of trust development responded more negatively to a violation of trust than buyers with more mature trust prior to the violation. This would be expected with a

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moderately strong violation, as would be true in the situation used in our scenarios, since trust is more fragile in the early stages. Buyers in more mature stages have invested more in the relationship and often develop emotional ties to the seller. In short, the buyer’s zone of tolerance (Huff, 2005) increases as trust matures and it requires a much greater violation, or series of violations, to generate strong negative responses. For managers, this points to the importance of first impressions and performing well the first time. It also points to the importance of managing reputation, so that the buyer enters early transactions with as high a level of initial trust for the seller as possible. As Robinson (1996) notes, individuals typically have a confirmation bias: they tend to look for information that confirms their initial evaluation, and discount disconfirming information. But would our hypotheses regarding stage of trust development hold if the perceived violation is strong enough to push trust below their “threshold of intolerance” (Huff, 2005)? There is reason to believe that when violations are strong enough, buyers with more mature trust will react more intensely than those who have invested less in the relationships. This could be considered the “farther they come, the harder they fall” hypothesis of trust violation. As Lewicki and Bunker (1996) eloquently state: Violations of trust in identification-based trust are more than unpredictability. They are more than forgetting to bring home the milk, pick up the dry cleaning, or pay the household bills. Because trust at this level is based on identity-sharing and identification, trust violations are actions that go against our common interests or agreements. They tap into values that underlie the relationship and create a sense of moral violation. They rend the fabric of the relationship and, like “reweaving,” they are expensive and time-consuming to repair, such that the fabric may never look quite the same.

If it is true that, given a strong enough perceived violation, negative reactions will be stronger the more mature the trust, managers should recognize that they can never take loyal, trusting customers for granted. The same customer that can be a seller’s strongest advocate can be its most passionate foe if things go seriously wrong. In this age of chat rooms, blogs, and viral marketing, great care should be taken to nurture mature relationships with customers. Three interactions were significant. First, as discussed, higher magnitudes of violation led to greater declines in trust when perceived likelihood of re-occurrence is low, but not when it is high. Second, integrity-based trust violations led to more intense negative emotions than capability-based violations when trust development was early, but not when it was mature. Third, high likelihood of reoccurrence led to more intense negative emotions when trust is mature, but not when it is less mature. Regarding the second interaction, in the early stages of trust development buyers are quite sensitive to negative cues. As discussed, they also tend to be more sensitive to process failures than outcome failures (Smith et al., 1999). Lack of integrity is more closely associated with process failures than lack of capability. For those with more mature trust, who have developed a more accurate evaluation of trust and have stronger emotional ties to the seller, moderate violations of integrity may not be taken as personally. Therefore, a violation is a violation, whether integrity-based or capability based. Regarding the third interaction, perhaps the buyer may anticipate that future violations, which appear likely, will eventually move trust below the threshold of intolerance. When it does, a stronger emotional response can be expected

to occur the greater the maturity of trust. That anticipation may cause the stronger negative emotions. Limitations and suggestions for future research While providing a foundation for future research, this study has limitations. Probably the greatest is the nature of a scenario-based experiment. Though our manipulation checks were positive, half-page scenarios simply cannot be expected to replicate the intensity of thought and emotions that real, personal situations would. This is probably why there were no main effects in explaining differences in negative emotion. That we did find main effects for decline in trust, negative word-of-mouth and repurchase intention validates our method, but there are definite limitations to how much an experiment of this sort can replicate reality. Future studies should try to find ways to go into the field and measure our influencing factors and buyer responses in real situations that mean more to the respondent. More rigorous theoretical work should focus on potential reasons for interactions among the influencing variables when explaining differences in buyer response. Our study of interactions was strictly exploratory and the rationale behind our attempt to explain the ones we found was admittedly somewhat tentative. One promising area for future research would be a theoretical examination of the role that buyer personality – namely propensity to trust and propensity to forgive – plays on the buyer’s response to a trust violation. Our findings clearly indicate that these two constructs, particularly propensity to forgive, affect buyer response. Future studies should consider, then test both the direct effect and possible moderating effects of propensities to trust and forgive. Conclusion Recovering effectively from violations of trust is imperative for sellers, especially today when distrust can be shared so rapidly and broadly. The first step to effective recovery is to understand the various ways in which buyers can respond and the factors that influence their response. This study represents an attempt to begin understanding how and why customers respond to violations of trust. While based largely on existing theory in the areas of service failure and recovery, some would still be considered exploratory. It is our hope that it will spawn further research on this important topic. Note 1. We investigated whether respondents were equally exposed to the sixteen scenarios. Our data indicate no serious violation for equal assignment ( x 2 ¼ 17:44 with 15 degrees of freedom, p ¼ 0:293). References Ajzen, I. (1991), “The theory of planned behaviour”, Organizational Behaviour and Human Decision Processes, Vol. 50, pp. 179-211. Bettman, J. (1979), An Information Processing Theory of Consumer Choice, Addison-Wesley, Reading, MA. Bhattacharya, R., Devinney, T. and Pillutla, M. (1998), “A formal model of trust based on outcomes”, Academy of Management Review, Vol. 23 No. 3, pp. 459-72.

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Appendix: Manipulations of scenarios Basic scenario: You recently opened a small restaurant specialized in Oriental cuisine. In about three weeks, after your staff has gained the necessary experience, you plan to have a big Grand-Opening promotion. You need to find a printing company that supplies print and point-of-sale advertising materials (e.g. banners, posters, graphics, flyers, coupons, direct mail materials, newspaper inserts, etc.).

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1. Stages of trust development Early stage of trust: To help you find a reliable printing company, you immediately called your friend, Pat. Pat has run several small restaurants in town for a number of years and has always given you good advice. Pat recommends Lynn’s Printing Company, a printer that you have never used. Pat says that Lynn’s does excellent work that is always on time, and that Lynn, the owner of the printing company, tries hard to meet the needs of customers. Mature stage of trust: The first printer that comes to mind is Lynn’s Printing Company. You have done business with Lynn’s for years. They have consistently done good work and kept their promises. You have always respected the owner, Lynn, as a person who tries hard to meet the needs of customers. Over the years, this respect has grown so much that you consider Lynn a genuine friend. You feel that you would do anything for Lynn and assume that Lynn would do anything for you. 2. Magnitude of trust violation Low: You estimate that the impact of having no point-of-sale advertising materials will translate into $1,500 in lost revenue, or 5 percent of the $30,000 you forecast for the week. While somewhat important, you are counting more heavily on other forms of promotion to attract customers. High: You estimate that the impact of having no point-of-sale advertising materials will translate into $10,000 in lost revenue, or one-third of the $30,000 you forecast for the week, since you will rely heavily on point-of-sale promotion to attract and inform customers for the Grand-Opening ceremony. 3. Controllability (integrity-based versus capability-based violation) Integrity-based: The explanation given by Lynn’s was that they were overwhelmed by a big order from a government agency. They said that though your order was placed several days before the big order from the government agency, Lynn’s worked on the government order first when the agency agreed to pay a substantial rush-order fee. Your order was therefore a low priority for Lynn’s. Capability-based: The explanation given by Lynn’s was that they were overwhelmed by a big order from a government agency, whose order was placed before yours. Lynn’s had overestimated the ability of their staff and equipment to handle this big order. To make matters worse, two key members of their staff were sick and could not work. 4. Stability (likelihood of future violations) Low: As you talk with staff members from Lynn’s, as well as other businesses who have used Lynn’s services, you conclude that Lynn’s rarely fails to deliver its services on time and that this was an unusual incident. High: As you talk with staff members from Lynn’s, as well as other businesses who have used Lynn’s services, you conclude that Lynn’s often fails to deliver its services on time and that this was a fairly typical incident.

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About the authors Sijun Wang is an Associate Professor in the International Business and Marketing Department in the College of Business and California State Polytechnic University, Pomona. She teaches marketing research, product and brand management and consumer behavior. Her published work has appeared in European Journal of Marketing, Journal of Business Research, Journal of Interactive Marketing and Journal of Services Marketing, among others. She has also authored seven books and book chapters in Chinese. Dr Wang has presented more than a dozen refereed conference papers at AMA, AMS, and SMA. She received her PhD in Marketing from the University of Alabama. Lenard C. Huff is Professor of Marketing and International Business Management at Brigham Young University – Hawaii. Lenard’s recent research has focused largely on trust, both organizational and customer trust. He has published in such journals as Management Science, Organization Science, Quality Management Journal, Journal of Business Research, Journal of Advertising Research and Journal of Marketing Education. Lenard’s interests also include cross-cultural research. He has served as area coordinator and program chair for the biennial Cross Cultural Research Conference, and as co-editor for a special issue on cross-cultural research for the Journal of Business Research. Lenard C. Huff is the corresponding author and can be contacted at: [email protected]

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The impact of psychological contracts on trust and commitment in supplier-distributor relationships Russel P.J. Kingshott Curtin University of Technology, Perth, Australia, and

The impact of psychological contracts 1053 Received November 2005 Revised November 2006 Accepted March 2007

Anthony Pecotich University of Split, Split, Croatia Abstract Purpose – The nurturing of trust within firm-customer relationships highlights the significance of social exchange theory in helping to explain the relational paradigm. By focusing upon this theory it was hypothesized that psychological contracts also play an important role in helping manage customer relationships. The principal purpose of this study is to explore the role of the psychological contract within the firm-customer relationship, and its effects on trust. Design/methodology/approach – A sample of 343 distributor firms within the motorized vehicle industry was used to test a model developed on the basis of social exchange theory. Findings – Psychological contracts are perceptual in nature and encompass reciprocal obligations stemming from the relational marketing efforts between suppliers and distributors. This construct was shown to have a positive impact upon the level of trust and commitment within the relationship; however, perceived violations of the contract terms were found to reduce the distributor’s level of trust. Originality/value – Given that trust was found to increase commitment, these findings have important managerial implications as they show that psychological contracts will erode important customer relationships if not factored into the customer decision-making processes within the firm. Keywords Trust, Psychological contracts, Relationship marketing Paper type Research paper

Introduction The “relationship-marketing paradigm” has captured the imagination of marketing scholars globally, and research on the topic has proliferated. A point of convergence for a significant part of this research, has been on the nature of the interaction between parties with specific attention on the complex dynamics associated with interdependent marketing relationships (e.g. Dwyer et al., 1987; Ford, 1980; Heide and John, 1990; Morgan and Hunt, 1994; Wilson, 1995). However, there still appears to be a distinct paucity of empirical studies devoted to this important area. Despite this, At the time of finalizing this paper Dr Pecotich was Visiting Professor at the University of Split, Split, Croatia. The authors wish to express their appreciation to Jan Pecotich for editing tasks; two anonymous reviewers, and the editors who greatly facilitated the progress of this paper; and Professor Biljana Crnjak-Karanovic´, Professor Zlatan Reic´, the Dean and the Faculty of Economics at the University of Split for their support while finalizing this paper.

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based on Scanzoni (1979), the work of Dwyer et al. (1987) and Ford (1980) in the context of buyer-supplier relationships has greatly helped our understanding of the dynamics associated with highly co-dependent marketing relationships. In their formulation, entwined in the processes are the core relational and social exchange theory constructs of commitment, relational norms, and trust behaviour between parties (Homans, 1961; Thibaut and Kelly, 1959). The identification of these variables, and in particular trust, as important elements in the firm-customer relationship has provided an insight into the capacity of social exchange theory to explain marketing relationships (e.g. Berry, 2002; Dwyer et al., 1987; Ford, 1980; Gro¨nroos, 1997; Gummesson, 2002; Heide and John, 1990; Morgan and Hunt, 1994; Palmer, 2002). By grounding marketing relationships in social exchange theory, scholars have shown the significant role this construct plays within manufacturer-distributor relationships (Anderson and Narus, 1984, 1990). Similar studies also reveal how trusting behaviours can help attract and maintain commitment in other firm-customer relational contexts (Garbarino and Johnson, 1999; Morgan and Hunt, 1994; Rexha et al., 2003). Within the business-to-business, trusting context, it is expected that psychological contracts will be operative and highly relevant to relationship management. It is the primary purpose of this study to present and test a model developed from a social exchange theory perspective where the psychological contract and trust are critical components. Relationship marketing, social exchange theory and the psychological contract The social exchange theoretical perspective explains social structure as a process of negotiated exchanges between parties based on the expectation that actions will result in a commensurate return, and that human relationships are formed by the use of a subjective cost-benefit analysis and the comparison of alternatives (Gouldner, 1960; Michener, 2004; Murstein et al., 1977). This is particularly apt for the relationship marketing context because central to the theory is the notion of reciprocity. This concept is critical in the maintenance of stability and commitment within the social system due to the establishment of mutual, enduring associations where both parties have concurrent rights and obligations (Gouldner, 1960). Zeithaml (1988) and Baker et al. (2002) provide marketing support for this view in their research on merchandise value where they emphasize the “give-get” notion of the exchange. Scanzoni (1979) provides further emphasis on the need for interdependence for the maintenance of relationships by suggesting that this is most likely when the actors: . perform valuable services for each other; and . when such performances generate feelings of moral obligation to reciprocate benefits derived. Essential to this viewpoint is the notion that relational norms help to bring order into the social system; however, it is only relatively recently that they have been shown empirically to help govern marketing relationships (e.g. Heide and John, 1990; Joshi and Arnold, 1998). Given that norms also constitute expected patterns of behaviors within a relationship, one of the underlying assumptions is that they can effectively propagate a common understanding between the parties (Lipset, 1975; Sherif, 1936). These ideas, and in particular the references to reciprocity in relation to duties and obligations logically lead to the concept of the psychological contract.

Rousseau (1989, 1990, 1995), although working in the organizational behavior area, provides a basis for the clarifications of the issues associated with the idea of the psychological contract. Her work has focused on the psychological bonding that results between employees and their employers, and is grounded in social exchange theory. The literature on psychological contract also draws upon the legal metaphor of contract law, i.e. promissory-based obligations and expectations between the parties. Further, to clarify issues she distinguishes between the normative (group-based) and psychological (individually based) contracts, and proposes that norms result from a “meeting of minds” between parties within close relationships and both of these “contracts” transpire as a direct consequence of continual interaction (Rousseau, 1995). The distinguishing feature between relational norms and the psychological contract is that norms involve the emergence of generally held, group-based, patterns of expected and accepted behaviors, whereas the psychological contract while also comprising expectations, resides in the mind of the individual (Rousseau, 1995). Normative contracts are said to exist only when the psychological contracts of individuals overlap (Rousseau, 1995). Robinson et al. (1994, p. 138) define the psychological contract as: “the beliefs held by individuals that each is bound by a promise or debt to an action or course of action in relation to the other party”. Rousseau (1995) elaborates on the psychological contract as being promissory in nature and intrinsically relational due to the following characteristics: . type of promise made; . frames of reference; . forms of agreement; and . a party’s reliance upon the perceived terms. As promises of this nature are also central within the relationship marketing context (Bitner, 1995) it is highly likely that the psychological contract will also result within the context of interdependent firm-customer relationships. There do not appear to be any empirically based studies devoted to the psychological contract within the marketing context; therefore, the principal purpose of this study is to explore the role of the psychological contract within the firm-customer relationship, and its effects on trust. Hopefully, this investigation will help extend our understanding of the relational marketing paradigm within a buyer-supplier context, and in particular extend our knowledge of those relationships from the perspective of social exchange theory. Conceptual development Social exchange theory is a major theoretical perspective that spans the social science disciplines. While the points of view and specifics may vary, the fundamental premise of this theory is that human relationships are essential for survival and that individuals engage in interaction to satisfy their needs (Blau, 1964; Gouldner, 1960; Homans, 1958, 1961). Reciprocity was fundamental to the theory from its inception and the associated rewards and obligations implied the existence of psychological bonds more formally referred to as psychological contracts (Blau, 1964; Gouldner, 1960). Contracts are fundamental to the behaviour of individuals and actions of organisations, and can be used to distinguish cooperative behaviours and interdependencies from independence. Unfortunately, the development of the psychological contract may engender dispute and disagreement between parties and therefore has the capacity to

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impact negatively upon relationships (Rousseau and Parks, 1993). Rousseau and Tijoriwali (1998, p. 679) define the psychological contract as: “an individual’s belief in mutual obligations between that person and another party”. The belief in these mutual obligations is predicated on the perception that a promise has been made, which is one of the hallmarks of any type of relationship, because, without a promise of future exchange parties have no incentive to contribute anything to one another. The unique feature of the psychological contracts vis-a`-vis other forms of agreement is that they are highly perceptual and idiosyncratic in nature, and represent the perception about one’s own, as well as the other parties relational obligations (Anderson and Schalk, 1998; Rousseau, 1990, 1995; Rousseau and Tijoriwala, 1998). Residing in the mind of the individual, they are often, perhaps indirectly, aimed towards the other party and represent powerful influences on behavior – effectively helping to define the relationship. In this regard, psychological contracts comprise mental models that facilitate the framing of promises. When formed, these promises result in stable, reliable and predictable underlying schema that may lead to the disregard of external factors. This illustrates the “holding power” of the construct because it focuses the mind upon the intrinsic factors perceived to be inherent within the relationship. Hence, the perceived obligations tend to act as the glue that binds parties so increasing the level of trust and commitment through strong psychological bonds. The socialisation between parties is critical in shaping current and future beliefs (Turnley and Feldman, 1999). Similarly, those contracts shown to exist within marketing relationships will develop during early stages of interaction when communication and bargaining causes the parties to “rearrange their mutual distributions of obligations, benefits and burdens” (Dwyer et al., 1987, p. 16). This clarifies the formation of buyer-supplier relationships by modeling their development through a number of stages so illustrating how firms increase their interdependence from higher levels of trust and relationship commitment. However, one of the central features contributing to the interdependence is the simultaneous formation of psychological contract because this construct represents beliefs that commitments have been made, and these have the effect of binding parties to some future action (Rousseau, 1995). While this mixture of obligations and promises has the capacity to increase trust and commitment, paradoxically they may engender dispute and disagreement between parties, and, when violated, can severely erode the foundations of the relationship (Robinson, 1996; Rousseau and Parks, 1993; Rusbult et al., 1988; Turnley and Feldman, 1998, 1999).Violations are inevitable within the relationship and result when one party perceives the other has failed to perform any of their perceived contractual terms (Robinson et al., 1994; Rousseau, 1995; Turnley and Feldman, 1998). Contract violations are thus perceptual in nature and engender strong emotional feelings, however, the “behavioral response” is contingent upon whether this perceived failure occurred because of perceptions related to either reneging or incongruence (Morrison and Robinson, 1997). In short, reneging is when one party perceives the other to knowingly and purposefully break promises, whereas incongruence results when there is a general failure because both parties have significantly different understandings about what is promised. Attributing any failures to reneging invariably attracts the strongest response and these are found to range from decreases in the level of perceived obligations by the “damaged” party through to reduced trust and relational

commitment. Clearly, the nature and scope of the different types of responses have a variety of broader relational implications and thus need managerial consideration. The above theory related to the psychological contract and subsequent violations would seem to be consistent with the view that individual episodes have the potential to greatly enhance or even severely damage the overall marketing relationship. We posit that such episodes are manifested through both the positive and negative feelings associated with contract formation and violations respectively (Ford, 1980). As they have the potential to impact upon the social exchange distributor relationship the direct and indirect effects of these two constructs upon trust and commitment will need to be tested. The inter-relationship between psychological contracts, contract violations, trust and commitment are depicted in the conceptual model highlighted in Figure 1, and the discussion above leads to the prediction that the stronger the psychological contract, the less likely contract violations are to occur. Hence:

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H1. There exists a negative relationship between psychological contract formation and psychological contract violations. Promises implied and explicit help build and nurture marketing relationships because they foster strong expectations of good faith and fair dealing through implicit and/or explicit communications of future intent (McLean-Parks and Schmedemann, 1994; Rousseau, 1995). The formation of the psychological contract is thus a function of two sets of factors: (1) external messages; and (2) social cues from within the relationship.

Figure 1. Effects of psychological contracts on trust and commitment

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These are coupled with an individual’s interpretation, predisposition and constructions (Rousseau, 1995). Messages sent by the partner and social cues by the employees of the organization are the basic “external” contributors to the development of an individual’s psychological contract. Rousseau (1995) argues that the psychological contract develops around an individuals’ “mental model” that help frame promises, acceptance and reliance. Promises may have no objective meaning and it is the perception of what was intended that forms the basis for the psychological contract. Trust is based upon the notion that trusting behaviours consist of actions that increase vulnerability through reliance upon others to fulfill obligations. More formally, Gambetta (1988, p. 217) has defined “trust (or, symmetrically, distrust) (a)s a certain level of subjective probability with which an agent assesses that another agent or group of agents will perform a particular action, both before he can monitor such action (or independently of his capacity ever to be able to monitor it) and in a context in which it affects his own action”. From this vantage point, considering that trust is contingent upon the confidence in the partner’s ability to perform as expected, it is reasonable to conclude that the presence of the psychological contract is also likely to influence the level of relational trust (Moorman et al., 1992). Given that trust and commitment are central features of the marketing relationship then these core constructs will also be influenced by the psychological contract (Morgan and Hunt, 1994; Wilson, 1995). In the context of social exchange theory, commitments are made largely upon the premise that the other party will not act opportunistically. There must, however, be a corresponding level of vulnerability within the relationship that needs to be negated in some fashion. Without the perception of vulnerability in a relationship, trust becomes unnecessary because any related outcomes are really inconsequential therefore trusting behavior must lead directly to relational commitments (Moorman et al., 1992). On an empirical level, trust was found to have an influential effect upon commitment (Morgan and Hunt, 1994; Garbarino and Johnson, 1999). Underpinning this conceptual model is the central role that both trust and commitment will play within the formation of distributor-supplier relationships (Doney and Cannon, 1997; Dwyer et al., 1987; Morgan and Hunt, 1994; Wilson, 1995). All constructs in the model result as a consequence of the interaction efforts between the parties. From this viewpoint, the outlined theory indicates that psychological contracts and contract violations will have a positive and negative effect upon trust and commitment respectively. Finally, trust is expected to have a direct and positive impact upon the level of relationship commitment. Based upon the theory previously outlined, these path relationships are expressed through the following hypotheses as shown in Figure 1: H2. There is a positive relationship between psychological contract formation and trust in the supplier firm. H3. There is a positive relationship between psychological contract formation and relationship commitment. H4. There is a positive relationship between trust in the supplier firm and relationship commitment. H5. There is a negative relationship between psychological contract violations and trust.

H6. There is a negative relationship between contract violations and relationship commitment. Method Sample frame A national sample of 1,900 distributor firms within the motorized vehicle industries was generated from a commercial database. Typical products distributed by the firms surveyed included motor vehicle supplies and parts, accessories, tools, and equipment, motorcycles and parts, motorboats and marine supplies, and outboard motors and parts. Given the technical and complex nature of these offerings implied a highly interactive relationship between supplier and distributor firms within the value chain. The highly interactive nature of these corporations was manifested by, for example, their incapacity to hold full inventory of parts so necessitating continual ordering interactions. Furthermore, as these offerings represented key “inputs” for the distributor’s downstream marketing activity it emphasized the critical importance of working closely with the supplier firm. Also, as many aspects of the products, such as technical support and servicing, were provided by the distributor on the manufacturer’s behalf, this ensured mutual relational inputs. Prior to the major fieldwork, 20 local businesses were identified from this industry and the research instrument was pre-tested to evaluate the respondents’ interpretability of items. Procedure The Dillman (2000) method was used, and this process took approximately ten weeks to complete. Respondents were contacted on four separate occasions with each mailing being personally addressed to the spare parts or service managers within selected distributor firms. The initial contact comprised a letter informing them of, and inviting them to participate in, an important research project related to their industry, as this improves response rates (Dillman et al., 1974; Groves, 1989). The second mailing involved the transmittal letter and the questionnaire, while the third mailing was sent four weeks later to those not responding, including both a follow-up letter and another copy of the research instrument. The fourth mailing thanked each respondent for their participation and provided a summary of the findings. As recommended, and although not reported, the late and early returns were statistically compared and no significant differences were found, thus indicating that non-response bias may not be a problem within the dataset (Armstrong and Overton, 1977). The fieldwork generated a total of 343 usable responses and this represented an effective response rate of 23 percent, which was consistent with other studies of this kind (Groves, 1989; Morgan and Hunt, 1994). Measures As the main purpose of this study was to assess the effects of psychological contracts and perceived violations upon critical relational constructs of trust and commitment all measures are comprised of existing scales. However, given the variety of research contexts of the original scales, slight modifications were made to the semantics of some items to cater specifically to this particular supplier-distributor context (see Appendix 1 for the items). One item was eliminated from the original trust measure, three from

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relational benefits and two from relational conditions. All measures used are grounded in social exchange theory and the constructs under examination in this setting materialized as a consequence of socialization between parties. Psychological contracts have been largely conceptualized in the literature as the extent an individual believes obligations, stemming from perceived or real promises have been made (Rousseau, 1989; Rousseau and Parks, 1993). We conform to the definition of Rousseau and Tijoriwali (1998, p. 679) that this construct represents “an individual’s belief in mutual obligations between that person and another party” because it aptly represents the mental model framing those promises that we expected the distributor to have with their suppliers. Subsequently, our measure encompassed most of the items within the four-factor scale developed by Rousseau (1995) to tap the extent that employees believed certain intrinsic and/or extrinsic promises were made as a consequence of the interaction with the employer. Although her scale captured the dimensions of good faith and fair dealing, intrinsic job characteristics, working benefits, and working conditions inherent within the employment relationship, we modeled these into this research context as good faith and fair dealing (GFFD), intrinsic relational characteristics (IRC) relational benefits (RB), and, relational conditions (RC) respectively. Our results (see Appendix 2, Table AI) indicate the robustness and applicability of these four sub-measures of the psychological contract construct within the supplier-distributor marketing context. Contract violations are conceptualised as the perception that another party has failed to fulfill their perceived psychological contractual obligations (see Morrison and Robinson, 1997; Robinson et al., 1994; Turnley and Feldman, 1998). Our definition corresponds to that offered by Rousseau (1995, p. 112), namely that psychological contract violations are simply “a failure to comply with the terms of a contract”. Interestingly, Morrison and Robinson (1997) note that such a view can often lead to confusion because it connotes that these violations are cognitive in nature and imply some form of a “mental calculation” of what was received compared to what was promised. Psychological contract violations need to embody much stronger emotive feelings of betrayal to represent the affective and emotional experience of disappointment, frustration, anger and resentment (Guest, 1998). Our measure catered for this by using the Turnley and Feldman (1998) four-item scale (see Appendix 1) because their items tapped an overall feeling that the other party had not fulfilled their contract obligations at the general level, and, this also appears to be consistent with the view that it is the mere perception that violations occurred that really matters, rather than actual non-fulfillment (Robinson et al., 1994). Finally, both the trust and commitment constructs were measured using the scales specifically developed by Morgan and Hunt (1994, p. 23) for close marketing relationships and these tapped the constructs in our context at the general level using seven and six items, respectively. Our definitions also coincide with theirs, namely that trust is the “confidence in the exchange partner’s reliability and integrity” and similarly that commitment is “an exchange partner believing that an ongoing relationship with another is so important as to warrant maximum efforts at maintaining it”. Both measures were specifically developed to tap these aspects within business-to-business marketing contexts.

Results Measurement model Ideally, confirmatory factor analysis would be the most appropriate method to analyse sequentially both the measurement and structural models because doing so conforms to the two-step procedure (Bollen, 1989; Gerbing and Anderson, 1988; Kline, 1998). However, given that psychological contracts and perceived contract violations, as well as their effects upon core relational constructs, have not been previously examined within a business-to-business marketing context, all items from each of the original scales were subject to exploratory factor analysis. Prior to this process, the 29 items encompassing the four psychological contract sub-measures (Rousseau, 1995) were subject to an initial phase of factor analysis to assess the dimensionality of the construct and identify problematic items. From this initial exploratory analysis a total of five items were eliminated from the relational benefit (three items) and relational condition (two items) measures. Despite the need for such purification, the results (see Appendix 2, Table AI) show that the original four-factor structure is largely replicated indicating general robustness of this multi-faceted construct at the operational level. As the alpha-indices of each of these four measures (see Table I) range from 0.87 to 0.95, this also indicates high reliability of the measures. By subjecting the seven constructs encapsulated by the remaining 39 items to a second phase of factor-analysis, the results (see Appendix 3, Table AII) show evidence of discriminant validity between these measures. During this procedure the four-factor structure of the psychological contract construct also remained intact, indicating further evidence of the robustness of these and the other construct measures. The data in Table I provide a general overview of the mean values, standard deviations, the inter-correlations between the seven measures of the four constructs and their reliability coefficients after summarising and averaging the items pertaining to each contract. Given that the a coefficients range from 0.95 to 0.86, this provides evidence of acceptable reliability standards for each of the multi-item construct measures.

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Structural model The stronger test of the hypothesized relationships stemming from the outlined theoretical model, in Figure 1, was conducted with the aid of AMOS 5 (Arbuckle, 1994-1999). Results of the analysis are shown in Table II. Based upon this overall model analysis, despite the significant p-value, highly favourable fit statistics indicate Construct 1. 2. 3. 4. 5.

Trust (TR) Commitment (CT) Contract violations (PCV) Relational conditions (RC) Good faith and fair dealing (GFFD) 6. Relational benefits (RB) 7. Intrinsic relational characteristics (IRC)

Meana

SD

1

2

3

4

5

6

7

b

5.77 7.45 5.81 5.79

2.354 (0.94) 1.801 0.488 2.292 0.572 2.135 0.295

(0.86) 0.377 (0.88) 0.341 0.286 (0.88)

6.29 4.64

2.208 2.614

0.498 0.284

0.416 0.274

0.458 0.272

0.401 (0.95) 0.472 0.371 (0.91)

5.78

2.187

0.388

0.437

0.357

0.450

Notes: aComposite item score; balpha indices in parentheses

0.515

0.464 (0.87)

Table I. Data summarization, reliability coefficients and correlation matrix

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the hypothesised theoretical model to be structurally sound (x2ð9Þ ¼ 35:01, p ¼ 0:000, GFI ¼ 0:970, RMSEA ¼ 0:061, NNFI ¼ 0:955, NFI ¼ 0:974, AGFI ¼ 0:908, CFI ¼ 0:981). The robustness of this model is complimented with the favourable direction of path weightings and significant p-values that offer support for five of the six hypotheses. In supporting H1, our data clearly shows that the presence of the strong psychological contracts will reduce the likelihood of any perceived psychological contract violations (g11 ¼ 20:641; p ¼ 0:000). Similarly, the presence of these psychological contracts were also found to increase the level of trust in the supplier firm (g21 ¼ þ0:351; p ¼ 0:000) as well as the distributor’s commitment towards this relationship (g31 ¼ þ0:526; p ¼ 0:000) whereby providing strong support for both H2 and H3, respectively. In supporting H4, namely that trust in the supplier firm was found to increase the level of distributor commitment towards the relationship (b32 ¼ þ0:408; p ¼ 0:000), these findings are consistent with the growing body of evidence in the marketing literature highlighting this trust-commitment nexus. The level of trust in the supplier firm was found to be substantially reduced when psychological contract violations were found to exist (b21 ¼ 20:526; p ¼ 0:000), providing clear evidence of support for H5. Finally, H6, which depicts psychological contract violations to reduce the level of relationship commitment, could not be fully substantiated because our findings appeared to be contradictory to expectations. The very small positive and insignificant beta weighting of the path (b31 ¼ þ0:097; p ¼ 0:114) tends to indicate, however, that this finding is inconclusive possibly due to a range of contextual factors embedded within the relationship. Discussion and conclusions In this article, an attempt was made to show the relevance of social exchange in the building of supplier-customer relationships, particularly in terms of the positive and negative effects of psychological contracts upon the overall relationship. From this it can be generally concluded that the empirical findings support the relational building capabilities of this construct through the enhancement of trust and commitment. However, these findings also reveal that contract violations can severely erode the level of trust in the supplier; therefore distributor firms willing to invest time nurturing the relationship through the building of trust need to be cautious about the effects of these violations. From the perspective of social exchange relationships the potential for relationship severance is always implicit; however, relational termination is likely to

Table II. Construct structural model

Linkages in model

Hypotheses

Direction

Parameter

Estimate

p value

Psychological contract-PC violations Psychological contract-trust Psychological contract-commitment Trust-commitment PC violations-trust PC violations-commitment

H1 H2 H3 H4 H5 H6

Negative Positive Positive Positive Negative Negative

g11 g21 g31 b32 b21 b31

20.641 þ0.351 þ0.526 þ0.408 20.526 þ0.097

0.000 0.000 0.000 0.000 0.000 0.114

Notes: Model diagnostics: x 2 ¼ 35:01, df ¼ 9, p ¼ 0:000, GFI ¼ 0:970, RMSEA ¼ 0:061, NNFI ¼ 0:955, NFI ¼ 0:974, AGFI ¼ 0:908, CFI ¼ 0:981

result in significant psychological, emotional and physical stress, and this can probably follow a number of trajectories (Dwyer et al., 1987). This study shows how one such trajectory results from the socio-emotive nature of the psychological contract violation, and in doing so it highlights a number of important aspects of relationship development and dissolution that appear to have been overlooked in the extant marketing literature. These provide a number of avenues for further scholarly consideration and future research. Clearly the interactive nature of the socialisation process between distributors and suppliers serves as an important mechanism to help build and nurture their relationships through increasing their interdependence. Our findings revealed no evidence that the presence of psychological violations reduce relational commitment, to offer support for H6. This raises the possibility that the study involved constrained choice. It is possible that in a competitive environment where choice options exist relational commitment may be reduced. However, from our data, the most significant finding for decision makers in terms of the erosion of the relationship is that contract violations do occur and that this construct has a strong negative impact upon the level of trust, which is a central aspect within the social exchange relationship. Psychological contract violations were found to be inherent within the context of distributor-supplier relationships and support for H5 indicates the construct offers the potential to substantially reduce the level of trust, and hence it will need to be factored into managerial decision-making. From a constructive perspective the findings provide further evidence of the presence of trust and commitment, and the positive relationship between these two constructs. However, the interactive nature of the social exchange relationship that helps form these two critical constructs also results in the development of the psychological contract this contributes to an increase in the level of psychological bonding between parties. While this construct was shown to positively influence trust and commitment, the precise manner of its development and impact upon other core exchange constructs needs investigation. With this in mind, current marketing literature highlights the significance of relational norms as an important governance mechanism within the social exchange relationship (see Berthon et al., 2003; Cannon et al., 2000; Heide and John, 1992; Joshi and Arnold, 1998; Kaufmann and Stern, 1988). As psychological contracts and relational norms stem directly from the same socialisation process, their interactive effects need to be examined in terms of the broader relationship. The distinction is made between the normative and psychological contract insofar as the former represents commonly held beliefs whereas the latter resides in the mind of the individual (Rousseau, 1995). From this vantage point, we anticipate that the presence of the psychological contract could hinder the effectiveness of norms in helping manage the marketing relationship because it will result in situations where some psychological contract obligations are being fulfilled under the guise of the normative contract whereas others are not. As this offers the potential to seriously undermine a party’s confidence in the capability of these informal rules of expected patterns of behaviour to help govern the relationship, it will affect the general robustness of relational exchange relationships (see Bettenhausen and Murnighan, 1985; Cannon et al., 2000; Dwyer et al., 1987; Lipset, 1975; Moch and Seashore, 1981; Scanzoni, 1979; Thibaut and Kelly, 1959). Clearly the impact of the psychological contract upon relational norms will need to be examined.

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In terms of the structure of the psychological contract, our study examined the development and effects of the construct from the perspective of representing the multi-faceted nature of the interface between distributors and their suppliers. In doing so, its dimensionality was characterised in terms of the widely cited four-factor structure developed by Rousseau (1995) because it helped us tap a broader range of transactional and relational aspects inherent within the distributor-supplier relationship. As indicated earlier, the psychological contract within the employment relationship has also been modelled to directly capture these transactional and relational elements (see Guzzo and Noonan, 1994; Herriot et al., 1997). The employee relations literature makes the distinction between these two types of contracts in order to help reflect the time frame, stability, scope, and tangibility of the contract in terms of the varying degrees of specificity, scope and flexibility (Rousseau, 1990; Rousseau and Parks, 1993). As the former symbolises limited involvement between parties in terms of assets, skills and emotional ties and the latter reflect higher levels of dynamism and socio-economic and intrinsic ties, relational contracts are more difficult to articulate as the relationship progresses (Turnley and Feldman, 1999). From this we anticipate that because imbalances due to violations in the transactional elements of the contract are found to be relatively easier to remedy within the employment relationship (Robinson et al., 1994) similar patterns are likely to result within marketing relationships. Considering that the relational elements of the contract may dominate the “life-space” of the relationship, it is critical that future research attempts to empirically examine the precise effects of transactional and/or relational contract violations upon core constructs within the marketing relationship (Guzzo and Noonan, 1994). This will enable managers to make appropriate decisions when contemplating either relational building or relational exit strategies. The current literature pertaining to the dissolution of marketing relationships (Pressey and Mathews, 2003; Stewart, 1998) has recognised that whilst this process is critical in the marketing relationships such a process will likely follow a number of potential paths. Consequently, a typology of relationship withdrawal strategies has been developed that attempts to encompass voluntary and involuntary approaches from the perspective of both the buyer and supplier (Pressey and Mathews, 2003). This shows the range of options available to the firm, and three of the four identified strategies are underpinned by the notion that one and/or both parties knowingly participate in proactive relationship withdrawal. The “fading away of the relationship” strategy provides some evidence that both buyers and suppliers are prepared to neglect the relationship because they do not appear to be sufficiently beneficial to devote further nurturing (Pressey and Mathews, 2003, p. 146). This type of behaviour is embodied within the exit, voice, loyalty, and neglect (EVLN) framework and is thus very similar to the neglecting behaviour identified likely to transpire as a consequence of psychological contract violations within the employment relationship (see Rusbult et al., 1988; Turnley and Feldman, 1999). As discussed earlier, such neglect is also present within the internal customer relationship context (Llewellyn, 2001), and this is embodied within the conceptual work of Stewart (1998), who models exit from the perspective of the EVLN framework. Our study draws upon the same conceptual foundations as this work and shows the direct negative impact that contract violations have upon trust. We anticipate that

while this nature of this violation-trust nexus offers the potential to ultimately erode the distributor-supplier relationship, there may be merit in empirically exploring the likely consequences of psychological contract violations from the perspective of this EVLN framework. The original application of the framework by Hirschman (1970) was principally designed to show how loyal customers are more tolerant of “failures” and were thus inclined to resort to the voice option rather then simply exiting the relationship. As indicated earlier, the potential range of behaviours offered by the framework have been shown to exist within the employment context, and we suspect that under certain relational conditions both buyers and suppliers are likely to tolerate psychological contract violations. The EVLN framework will thus be helpful to further explore these behaviours empirically within this marketing context, and the improved understanding derived may perhaps avoid unnecessary, as well as costly relationship failures. In conclusion we emphasise that our study has many limitations, including the sample design and the effective response rate of 23 percent, and urge future investigators to design studies to overcome some of these drawbacks.

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Gambetta, D. (Ed.) (1988), Trust: Making and Breaking Cooperative Relations, Blackwell, New York, NY. Garbarino, E. and Johnson, M.S. (1999), “The different roles of satisfaction, trust, and commitment in customer relationships”, Journal of Marketing, Vol. 63, pp. 70-87. Gerbing, D.W. and Anderson, J.C. (1988), “Structural equation modelling in practice: a review and recommended two-step approach”, Psychological Bulletin, Vol. 103, pp. 411-23. Gouldner, A.W. (1960), “The norm of reciprocity: a preliminary statement”, American Sociological Review, Vol. 25, pp. 161-78. Gro¨nroos, C. (1997), “Value-driven relationship marketing: from products to resources to values”, Journal of Marketing Management, Vol. 13, pp. 407-20. Groves, R.M. (1989), Survey Errors and Survey Costs, Wiley, New York, NY. Guest, D.E. (1998), “Is the psychological contract worth taking seriously?”, Journal of Organizational Behavior, Vol. 19, pp. 649-64. Gummesson, E. (2002), “Relationship marketing in the new economy”, Journal of Relationship Marketing, Vol. 1, pp. 37-58. Guzzo, R.A. and Noonan, K.A. (1994), “Human resource practices as communications and the psychological contract”, Human Resource Management, Vol. 33, p. 3. Heide, J.B. and John, G. (1990), “Alliances in industrial purchasing: the determinants of joint action in buyer-supplier relationships”, Journal of Marketing Research, Vol. XXVII, pp. 24-36. Homans, G.C. (1958), “Social behavior as exchange”, American Journal of Sociology, Vol. 63, pp. 597-606. Homans, G.C. (1961), Social Behaviour: Its Elementary Forms, Harcourt, New York, NY. Joshi, A.W. and Arnold, S.J. (1998), “How relational norms affect compliance in industrial buying”, Journal of Business Research, Vol. 41, pp. 105-14. Kline, R.B. (1998), Principles and Practice of Structural Equation Modeling, Guilford Press, New York, NY. Lipset, S.M. (1975), “Social structure and social change”, in Blau, P.M. (Ed.), Approaches to the Study of Social Structure, Open Books Publishing, London. Llewellyn, N. (2001), “The role of psychological contracts within internal service networks”, Service Industries Journal, Vol. 21, pp. 211-26. Mclean-Parks, J. and Schmedemann, D.A. (1994), “When promises become contracts: implied contracts and handbook provisions on job security”, Human Resource Management, Vol. 33, pp. 403-23. Michener, H.A. (2004), Social Psychology, Wadsworth, Toronto. Moorman, C., Zaltman, G. and Deshpande´, R. (1992), “Relationships between providers and users of market research: the dynamics of trust within and between organizations”, Journal of Marketing Research, Vol. 14, pp. 314-28. Morgan, R.M. and Hunt, S.D. (1994), “The commitment trust theory of relationship marketing”, Journal of Marketing, Vol. 58, pp. 20-38. Morrison, E.W. and Robinson, S.L. (1997), “When employees feel betrayed: a model of how psychological contract violation develops”, Academy of Management Review, Vol. 22, pp. 226-56. Murstein, B.I., Cerreto, M. and Macdonald, M.G. (1977), “A theory and investigation of the effect of exchange-orientation on marriage and friendship”, Journal of Marriage and the Family, Vol. 39, pp. 543-8.

Palmer, A. (2002), “The evolution of an idea: an environmental explanation of relationship marketing”, Journal of Relationship Marketing, Vol. 1, pp. 79-97. Pressey, A.D. and Mathews, B.P. (2003), “Jumped, pushed or forgotten? Approaches to dissolution”, Journal of Marketing Management, Vol. 19, pp. 131-55. Rexha, N., Kingshott, R.P.J. and Aw, A. (2003), “The impact of the relational plan on adoption of electronic banking”, Journal of Services Marketing, Vol. 17, pp. 53-65. Robinson, S.L. (1996), “Trust and breach of the psychological contract”, Administrative Science Quarterly, Vol. 41, pp. 574-99. Robinson, S.L., Kraatz, M. and Rousseau, D.M. (1994), “Changing obligations and the psychological contract: a longitudinal study”, Academy of Management Journal, Vol. 37, pp. 137-52. Rousseau, D.M. (1989), “Psychological and implied contracts in organizations”, Employee Rights and Responsibilities Journal, Vol. 2, pp. 121-39. Rousseau, D.M. (1990), “New hire perceptions of their own and their employer’s obligations: a study of psychological contracts”, Journal of Organizational Behaviour, Vol. 11, pp. 389-400. Rousseau, D.M. (1995), Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements, Sage Publications, Newbury Park, CA. Rousseau, D.M. and Parks, J.M. (1993), “The contracts of individuals and organizations”, in Cummings, L.L. and Staw, B.M. (Eds), Research in Organizational Behaviour, Vol. 15, JAI Press, Greenwich, CT. Rousseau, D.M. and Tijoriwala, S.A. (1998), “Assessing psychological contracts: issues, alternatives and measures”, Journal of Organizational Behaviour, Vol. 19, pp. 679-95. Rusbult, C.E., Farrell, D., Rogers, G. and Mainous, A.G.I. (1988), “Impact of exchange variables on exit, voice, loyalty and neglect: an integrative model of responses to declining job satisfaction”, Academy of Management Journal, Vol. 31, pp. 599-627. Scanzoni, J. (1979), “Social exchange behavioural interdependence”, in Burgess, R.L. and Huston, T.L. (Eds), Social Exchange in Developing Relationships, Academic Press, New York, NY. Sherif, M. (1936), The Psychology of Social Norms, Harper and Brothers, New York, NY. Stewart, K. (1998), “An exploration of customer exit in retail banking”, The International Journal of Bank Marketing, Vol. 16, pp. 6-14. Thibaut, J.W. and Kelly, H.H. (1959), The Social Psychology of Groups, Wiley, New York, NY. Turnley, W.H. and Feldman, D.C. (1998), “Psychological contract violations during corporate restructuring”, Human Resource Management, Vol. 37, pp. 71-83. Turnley, W.H. and Feldman, D.C. (1999), “The impact of psychological contract violations on exit, voice, loyalty and neglect”, Human Relations, Vol. 52, pp. 895-917. Wilson, D.T. (1995), “An integrated model of buyer-seller relationships”, Journal of the Academy of Marketing Sciences, Vol. 23 No. 4, pp. 346-50. Zeithaml, V.A. (1988), “Consumer perceptions of price, quality, and value: a means-end model and synthesis of evidence”, Journal of Marketing, Vol. 52, pp. 2-22.

Further reading Gouldner, A.W. (1960), “The norm or reciprocity: a preliminary statement”, American Sociological Review, Vol. 25, pp. 161-78.

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Appendix 1: Item descriptions Trust (TR1-7) In our relationship, our major supplier . . . T1.

cannot be trusted at times (R).

T2.

is perfectly honest and truthful.

T3.

can be trusted completely.

T4.

can be counted on to do what is right.

T5.

is always faithful.

T6.

is someone that I have great confidence in.

T7.

has high integrity.

(0-10 point scale: strongly disagree . . . strongly agree; (R) reverse scored) Commitment (CT1-6) The relationship that my firm has with our major supplier . . . C1.

is something that we are very committed to.

C2.

is very important to my firm.

C3.

is of little significance to us (R).

C4.

is something my firm intends to maintain definitely.

C5.

is very much like being family (D).

C6.

is something my firm really cares about.

C7.

deserves our firm’s maximum attention to maintain.

(0-10 point scale: strongly disagree . . . strongly agree; (R) reverse scored; (D) item deleted) Psychological contract violations (PCV1-4) In the relationship with our major supplier . . . PCV1.

fulfilled all promised commitments to our firm.

PCV2.

fulfilled all obligations to us compared to what was expected.

PCV3.

fulfilled all obligations to us compared to what was promised.

PCV4.

has to a large extent failed to meet their commitments to us (R).

(0-10 point scale: strongly disagree . . . strongly agree; (R) reversed scored) Psychological contracts Good faith and fair dealing (GFFD1-6). In the relationship with our major supplier, they have promised . . . GFFD1. a collaborative work environment between our firms. GFFD2. candid and open feedback within our relationship.

GFFD3. respect for our firm’s efforts within the relationship. GFFD4. a cooperative working relationship between our firms. GFFD5. honest treatment towards our firm in the relationship.

The impact of psychological contracts

GFFD6. professional and collegiality directed towards our firm. (0-10 point scale: strongly disagree . . . strongly agree) Relational benefits (RB1-6). In the relationship with our major supplier, they have promised . . . RB1.

attractive benefits package to your firm to distribute their products.

RB2.

positive financial returns tied to your firms performance.

RB3.

a flexible benefits package for distributing their products.

RB4.

good opportunities for advancing your firm.

RB5.

extra bonuses linked to your firm’s performance.

(0-10 point scale: strongly disagree . . . strongly agree) Relational conditions (RC1-6). In the relationship with our major supplier, they have promised . . . RC1.

the tools necessary for your firm to perform its role effectively.

RC2.

an environment that promotes the opportunity for your firm to learn.

RC3.

materials and equipment needed by your firm to perform its role.

RC4.

a clean and safe work environment for your firm to operate in.

RC5.

necessary skill development for your firm’s employees.

RC6.

further training and/or information for employees within your firm.

(0-10 point scale: strongly disagree . . . strongly agree) Intrinsic relational characteristics (IRC1-5). In the relationship with our major supplier, they have promised . . . IRC1.

a relationship role that is interesting to your firm.

IRC2.

a meaningful role for your firm within the relationship.

IRC3.

a distribution role that provides your firm with high levels of autonomy.

IRC4.

a distribution role that is challenging to your firm.

IRC5.

a distribution role that has high levels of responsibility.

(0-10 point scale: strongly disagree . . . strongly agree)

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Table AI. Factor structure for psychological contract

GFFD1 GFFD2 GFFD3 GFFD4 GFFD5 GFFD6 RC1 RC2 RC3 RC4 RC5 RC6 RB1 RB2 RB3 RB4 RB5 IRC1 IRC2 IRC3 IRC4 IRC5

GFFD

Conditions

Benefits

Characteristics

0.730 0.830 0.859 0.901 0.885 0.774 (25.94)a

Notes: aCumulative variance explained

0.663 0.666 0.731 0.600 0.788 0.757 (43.03) 0.739 0.853 0.817 0.480 0.835 (59.41) 0.571 0.604 0.668 0.774 0.689 (73.81)

Appendix 3 Items TR1 TR2 TR3 TR4 TR5 TR6 TR7 CM1 CM2 CM3 CM4 CM5 CM6 PCV1 PCV2 PCV3 PCV4 RC1 RC2 RC3 RC4 RC5 RC6 GFFD1 GFFD2 GFFD3 GFFD4 GFFD5 GFFD6 RB1 RB2 RB3 RB4 RB5 IRC1 IRC2 IRC3 IRC4 IRC5

Trust

Commitment

Violation

Conditions

GFFD

Benefits

Characteristics

0.751 0.718 0.735 0.790 0.753 0.754 0.815 (17.41)a

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0.775 0.762 0.632 0.628 0.621 0.461 (26.20) 0.687 0.700 0.741 0.525 (32.61) 0.657 0.641 0.715 0.616 0.767 0.731 (42.29) 0.674 0.765 0.800 0.835 0.786 0.695 (55.88) 0.732 0.854 0.812 0.479 0.837 (65.45) 0.516 0.564 0.653 0.742 0.633 (72.99)

Note: aCumulative variance explained

About the authors Russel P.J. Kingshott attained his PhD from the University of Western Australia. He has 14 years’ industry experience and ten years’ university lecturing experience. He has published in Journal of Services Marketing, Industrial Marketing Management, Journal of Industrial Relations and Journal of Asia Pacific Marketing. His papers have also been accepted in the American Marketing Association Educators, Association for Consumer Research, Australia and New Zealand Marketing, International Marketing and Purchasing Group and Macro-Marketing conferences. His current research interests include relationship marketing, business-to-business markets, and the internationalisation of the micro-firm. Russel P.J. Kingshott is the corresponding author and can be contacted at: [email protected]

Table AII. Principal components factor analysis on all construct items

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Anthony Pecotich is Visiting Professor in Marketing at the University of Split, Croatia and is also on the faculty of the University of Western Australia. He has received a MSc and a PhD in Marketing from the University of Wisconsin – Madison. Dr Pecotich has consulted and taught extensively in Australia, USA, Europe and Asia. He currently serves or has served on the editorial review board for Journal of Personal Selling and Sales Management and Journal of Macromarketing, and has been an ad hoc reviewer for The Journal of Marketing, The Journal of Business Research and The Journal of Public Policy and Marketing. He has published in such prestigious journals as The Journal of Marketing, Decision Sciences, Organizational Behavior and Human Performance, Journal of the American Society for Information Science, Journal of Applied Social Psychology, The International Journal of Research in Marketing, Journal of Public Policy and Marketing, Journal of Retailing and Consumer Services, The Journal of Business Research, European Journal of Marketing, Journal of International Marketing, Marketing Letters and Journal of Marketing Research.

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Trust in buyer-seller relationships: the challenge of environmental (green) adaptation Louise Canning Business School, University of Birmingham, Birmingham, UK, and

Stuart Hanmer-Lloyd Business School, University of Gloucestershire, Cheltenham, UK

Trust in buyer-seller relationships 1073 Received November 2005 Revised November 2006 Accepted March 2007

Abstract Purpose – The paper aims to describe and develop the constructs of trust and adaptation in supplier-customer relationships when associated with environmental (green) issues. Design/methodology/approach – The study is based on empirical data obtained from the perspective of both supplier and customer companies involved in dyadic exchange relationships, using qualitative methods of data collection and analysis. Findings – The paper uses an environmental context to show that, while having the potential to contribute to trust in dyadic relationships, adaptation can also undermine the trust that already exists between supplier and customer companies. Research limitations/implications – The findings are derived from two instances of successful environmental adaptation, one that resulted in failure and two that were ongoing. Both of the completed projects demonstrated little apparent difficulty, while the ongoing projects featured some conflict and frustration. These differences could be explained by the tendency to rationalise events after they have occurred, eliminating the “messiness” that is inherent in dealing with collaborative efforts that involve some risk and conflicting interests. Future empirical work could perform action research in which efforts to adapt are directly observed and are discussed both during and after attempts to bring about change. Practical implications – The paper provides recommendations of how environmental adaptations can be realised successfully even though changes might challenge the basis of an existing relationship and the trust that might already exist within it. These recommendations might equally be used to guide other forms of adaptation. Originality/value – The paper broadens understanding of trust and adaptation by looking at a management issue that is of growing importance in supplier-customer relationships, namely the environmental impact of business activities. Keywords Trust, Environmental management, Buyer-seller relationships Paper type Research paper

Introduction Whatever their business and wherever they operate in the world, companies must address the environmental impact of their own activities and those of the supply chains of which they are a part. Organisations and researchers obviously draw heavily from material and environmental sciences to determine how the environmental effect of product systems can be minimised. However, improving environmental performance also challenges the way that firms conduct their business. That attempts to reduce environmental impact require coordinated effort between companies is nothing new, yet

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understanding is lacking of the effect of such efforts on supplier-customer relationships. Our work attends to this omission. We examine the concepts of trust and adaptation in supplier-customer relationships, looking specifically at the effect that environmental adaptation can have on inter-firm trust. While previous work has determined that adaptation can contribute to the development of trust, by using an environmental context, our research shows that it does not build trust in a relationship by default. The paper introduces the significance of industry efforts to improve environmental performance before going on to review previous work that has examined the nature of trust and also adaptation in inter-firm relationships. Links are made between trust and adaptation, although it is concluded that little is understood about the contribution of trust in reducing vulnerability experienced by firms performing environmental adaptations and in facilitating inter-firm activities required to realise sought-after adaptations. We then discuss methods used for data collection and analysis before going on to present our findings. The paper concludes with managerial and research implications. Literature review The greening of business relationships Environmental issues have increased in prominence in the business community as the availability of non-renewable resources becomes acute and the desire (resulting from external pressures but also common business sense) increases to contain the effect of business activities on the natural environment. Efforts to minimise environmental impact can only be achieved via the coordinated effort of various parties in a supply chain (Shrivastava, 1995). This coordination is critical, bearing in mind the related effect of resource, material and product use and disposal throughout a supply chain as well as at various points along that chain (Hall and Roome, 1996). The flow of materials between entities requires co-ordination to reduce environmental damage and to engineer solutions to an entire product system (Linnanen et al., 1995). Companies that are part of a particular product system might: . exchange material or product information (Cramer and Schot, 1993); . be expected to comply with environmental managements systems such as the ISO 9001 series or be subject to environmental audits by exchange partners (Pujari et al., 2003, 2004); . amend operational processes or products (Walton et al., 1998); and . facilitate product return systems (Meffert and Kirchgeorg, 1996; Sheu et al., 2005). Clearly, companies have to address technical, logistical and informational aspects in seeking to minimise the environmental impact of product systems, but this has to be done within the context of existing and new relationships. Improving environmental performance is not necessarily straightforward; indeed, trust (and its association with adaptation) is important when established relationships are challenged and new ones are formed. Trust – a general and central concept in marketing To develop an understanding of trust in inter-firm relationships, researchers have drawn from a variety of academic fields, including social psychology (e.g. Deutsch,

1960; Lewicki and Bunker, 1995), sociology (e.g. Lewis and Weigert, 1985), economics (e.g. Williamson, 1991) and, of course, marketing (e.g. Camarero Izquierdo and Gutierrez Cillan, 2003; Doney and Cannon, 1997; Ganesan and Hess, 1997; Harris and Dibben, 1999; Moorman et al., 1993). Previous research offers insights into the nature of trust, its definition, the processes through which it develops as well as its contribution to inter-firm relationships. The purpose of the discussion that follows is to reflect the key themes that can be drawn from the existing body of literature and to use this understanding as the basis for linking the concept of trust to that of adaptation in inter-firm relationships. Whilst the terminology might differ, a number of common propositions regarding trust are apparent across the different academic fields. A key point underpinning trust and which is consistently made is that it only becomes operational when the trusting parties are vulnerable, (Doney and Cannon, 1997), the implication being that those parties have to participate in risk-taking behaviour for this vulnerability to exist (Anderson and Narus, 1990; Giddens, 1991; Mayer et al., 1995; Morgan and Hunt, 1994). Risk is an inherent feature of exchange in business markets, where managers have to deal with uncertainty and possible negative consequences (Mitchell, 1995) surrounding purchase and supply decisions. The level of risk perceived by managers can be determined by the “novelty” of the decision to be made and the effect of a decision on organisational performance, and could certainly be associated with attempts to reduce the environmental impact of individual companies and product systems. Only when perceived risk is converted into action, into risk-taking behaviour, do the means by which managers and organisations seek to compensate for uncertainty and negative consequences of those actions become relevant (Mayer et al., 1995). Risk-taking behaviour can be handled by the use of formal structures such as contracts. When handling risk arising from improved environmental performance, these formal means might include independent assessment such as ISO 9001, auditing of an exchange partner’s activities or the requirement that material and product supply be accompanied by documentation certifying, for example, that items are free from specific environmentally harmful substances. As well as such formal measures, it is widely accepted that risk taking can be dealt with via more informal mechanisms such as trust (Malhotra and Murnighan, 2002), and what we seek to determine is the role (if any) that it plays when companies are trying to minimise environmental impact and have to draw on exchange relationships in order to do this. If trust represents an important governance mechanism that mitigates risk-taking behaviour, then what is it exactly, and how does it manifest itself in exchange relationships? Trust is placed in people (Mayer et al., 1995), is associated with vulnerability and positive expectations, and can be described as a “psychological state comprising the intention to accept vulnerability based on positive expectations of the intentions or behaviour of another” (Rousseau et al., 1998, p. 395). Such a definition is quite broad, and while it could apply to an individual’s inherent disposition to trust another party (Rotter, 1971), we use it in connection with the relational trust that can exist in dyadic exchange relationships between supplier and customer companies. In this sense the confident and positive expectations regarding another’s conduct are developed as a result of interaction with and experience of dealing with an exchange partner (Granovetter, 1985; Kramer, 1999; Ring and Van de Ven, 1992; Svensson, 2005; Zaheer et al., 1998). Interaction consists of numerous short-term episodes of

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interpersonal contact between managers. The experience of repeated encounters with exchange partners and the level of satisfaction with the outcome of these contribute to the degree of trust between parties (Anderson and Narus, 1990; Malhotra and Murnighan, 2002; Selnes, 1998; Svensson, 2005; Wilson and Mummalaneni, 1986). Managers will use cognition- and affect-based measures of trust in these encounters. Cognition based trust is rational in that “we choose whom we will trust, in which respects and under what circumstances, and we base the choice on what we take to be ‘good reasons’, constituting evidence of trustworthiness” (Lewis and Weigert, 1985, p. 970). Cognition-based measures include the perceived credibility and benevolence of a target of trust (Ganesan, 1994; Kumar et al., 1995; Molm et al., 2000). The first dimension focuses on the objective credibility of an exchange partner, the expectancy that the partner’s word or written statement can be relied on (Lindskold, 1978). The second dimension, benevolence, is the extent to which one partner is genuinely interested in the other partner’s welfare and is motivated to seek joint gain. As well as such rational measures, affective foundations for trust also exist, consisting of the emotional bonds that develop between individuals (McAllister, 1995; Molm et al., 2000). Such emotional bonds, include interpersonal liking, and develop as a result of shared business values and frequent interactions between managers from supplier and customer companies (Nicholson et al., 2001). An inter-firm relationship is not “faceless and monolithic [but] it is actively handled and managed by individual boundary spanners” (Zaheer et al., 1998, p. 143). McAllister (1995) argues that both the cognition and affect based trust that we have discussed represent distinct forms of interpersonal trust (McAllister, 1995). Liking associated with affective measures of trust can be clearly linked to managers from one organisation placing trust in individuals that they deal with in a partner company (Nicholson et al., 2001). However, cognitive measures such as credibility and benevolence, whilst demonstrated to managers in a partner organisation via the behaviour of a company’s representatives, are the means through which organisational trust can be developed. Repeated exchange and interaction between managers from partner companies provide the means through which credibility and benevolence might be experienced by or demonstrated to an exchange partner. Such repeated exchanges and demonstrations result in structures, processes and norms that link firms becoming institutionalised. These “blueprints” for the ways in which companies do business together contribute to trust at the organisational level being developed. Interestingly Zaheer et al. (1998) argue that whilst boundary-spanners change, institutionalised patterns of inter-firm behaviour remain constant and that inter-organisational trust (the confident and positive expectations regarding another organisation’s conduct resulting from these institutionalised patterns of inter-firm behaviour) has the greatest impact on exchange processes between firms and the outcome of those processes. If trust can mitigate risk-taking behaviour and can be built via repeated and positive interactions with exchange partners, then what effect does this have on inter-firm relationships? As well as being a determinant of long-term relationships between buyers and sellers (Doney and Cannon, 1997; Ganesan, 1994) and contributing to growing interdependence in such relationships (Selnes, 1998), trust facilitates cooperation and collaboration between firms (Child, 2001; Das and Teng, 1998; Jones and George, 1998; Rindfleisch, 2000; Zaheer et al., 1998) and activities associated with

such inter-firm coordination, including information exchange, learning, knowledge transfer and problem solving (Abrams et al., 2003; Jeffries and Reed, 2000; Riddalls et al., 2002; Zand, 1972). Such activities would certainly be important in efforts to reduce the environmental impact of product systems/supply chains and might typically be conducted via interaction, via interpersonal contact between managers from supplier and customer companies. So interaction in inter-firm relationships is not only a means by which individuals might demonstrate or experience trustworthiness, but as a medium for activities associated with collaboration and cooperation, can also be facilitated by trust.

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Adaptation in business relationships Adaptation is a key feature of supplier-customer relationships, enabling companies to deal with each other successfully over extended periods of time (Ha˚kansson, 1982; Hallen et al., 1993) and can include adjustments to a company’s own operations as well as to exchange activities with a partner organisation. Such manifest commitments of resource to a relationship have not only been denoted as an adaptation (Ha˚kansson, 1982), but also as a transaction specific investment (Williamson, 1985), a pledge (Anderson and Weitz, 1992) and a commitment input (Grundlach et al., 1995). For the purposes of this paper, the term “adaptation” will be used and will be defined as: . . . modifications at the individual, group or corporate level which are carried out by one or both parties in an exchange relationship in order to suit new needs or conditions, and which are designed initially for that specific relationship (Canning, 1999 p. 35).

Observable forms of adaptation can lead to more subtle changes in sentiment. The resource invested in performing some adaptation to support a given relationship cannot be readily transferred elsewhere (Williamson, 1985). Such an act can signal commitment to that relationship and result in a company being considered more trustworthy by an exchange partner. These various forms of relationship-specific modifications are outlined in Table I. One might expect environmental adaptations to be mainly technical or logistical in nature, although these might also be closely associated with knowledge-based adaptations. Assumptions typically associated with adaptation in supplier-customer relationships are that only one party performs the adaptation, and in some cases this might be because of power asymmetry (Hallen et al., 1991). In addition to this, some modifications are made without an exchange partner knowing, while others are straightforward, requiring little more than a brief exchange before the adjustment is Category of adaptation

Form of adaptation

Technical Logistical Administrative Financial Knowledge Mutual orientation

Product and production processes Stock levels or delivery systems Planning or scheduling systems Handling of payments; special credit arrangements Information exchange acting together in technical development matters Changes in attitudes towards and knowledge of exchange partners

Source: Adapted from Johanson and Mattson (1987)

Table I. Taxonomy of inter-firm adaptation

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made. However, some adaptations necessitate exchanges to determine how activities might be coordinated to better align a relationship or to resolve a particular problem faced by one or both parties (Bureth et al., 1997; Sobrero and Roberts, 2002) such as how to reduce the environmental damage caused by the companies themselves or the product system of which they are a part. In such cases, this problem-solving that adaptation causes involves information exchange and communication between firms, and (given our previous discussion), must surely be affected by trust in an exchange relationship. This association, which has previously been given limited attention, represents a key focus in our investigation.

Linking trust and adaptation Adaptations are known to affect trust in a relationship. For example, mutual adaptation is central to the trust-building process in relationship development (Anderson and Weitz, 1992; Ford, 1980; Hallen et al., 1991) and trustworthiness, in terms of a disinclination to behave opportunistically, can be communicated by the act of investing resources in adaptations for the benefit of a specific relationship or exchange partner. While it is accepted that trust can develop as a consequence of adaptation, what appears to be universally and erroneously assumed, is that if either or both parties to a relationship make a relationship specific investment, then de facto, trust will follow. Our research seeks to test this assumption. Existing understanding of the links between trust and adaptation ignores the contribution of the nature of the sought-after adaptation. This paper addresses this omission and in doing so, considers specifically the effect that environmental (green) adaptations can have in either strengthening or undermining the trust that already exists in an exchange relationship. Adaptation represents a form of problem-solving in which firms might adjust internal operations or elements of exchange activities. Both suppliers and buying organisations can trigger the need to adapt, but the sought-after adaptation may or may not take place. The exercise of power can certainly explain instances where adaptation initiatives might be blocked and is known to be a key driver of adaptation (as well as related problem-solving and co-operation) in supplier-customer relationships (Hallen et al., 1991; Young and Wilkinson, 1989). Understanding of how trust might affect adaptation (either as a facilitator or impediment) in such relationships is limited. This paper addresses this paucity by exploring the contribution of trust (as something that already exists or has to be created) in supplier-customer relationships, to the realisation of sought after environmental adaptations.

Research methodology Case study When investigating inter-firm behaviour such as that associated with trust and adaptation, it is important to be able to account for the historical context of long-term relationships. A case study approach was therefore selected in order to understand the phenomena (trust and environmental adaptation) without removing these from their “real-life context” of the exchange relationship (Bonoma, 1985; Yin, 1993).

Case and adaptation selection Whilst one thorough case study might more than adequately satisfy the purposes of some investigations (Yin, 1993; Easton, 1995), we wanted to take account of differing inter-firm relationships and the possible significance of adaptations being sought. Consequently a multiple case design was used. This therefore required the selection of exchange relationships of varying importance and adaptations of greater or lesser risk. While the term “selection” suggests that the researcher has a strong degree of control over the sample design, the use of selected cases was in fact a balance between an ideal sample plan and those companies who were accessible and hospitable to the inquiry (Stake, 1995). All of the companies who participated in the investigation were from the electronics industry, albeit different sectors and supply chain points. This was not a deliberate focus, but the introduction of European electronic waste legislation in 2005 meant that environmental issues had been a concern amongst companies in this industry for some time. The five adaptations (two in case number 2) that act as the foundation for this paper were nominated by participating companies. Any investigation of environmental adaptation in an interactive exchange relationship should draw from the experience of both parties ( John and Reve, 1982; Svensson, 2005). Customer companies who agreed to take part in the investigation nominated suppliers with whom some form of environmental adaptation was underway or had been attempted. As will be seen in our subsequent discussion, the four case study relationships that featured in this investigation varied in terms of the importance of exchange partners to each other, as did the adaptations with respect to risk and relationship impact. Data collection and analysis A variety of managers may become directly involved in dealing with exchange partners (Cunningham and Homse, 1986) and contribution to company environmental performance targets is typically expected of managers across a range of functional areas (Welford, 1992). Managers were identified based on their direct involvement in the chosen relationships and environmental adaptations. This selection was a cumulative sampling process (Patton, 1990), where initial discussions with the customer companies enabled the identification of other managers involved with the specific relationship and/or environmental adaptation. The process of respondent identification and selection was repeated with supplier companies, using an initial contact nominated by the customer organisation. Table II lists the 26 respondents who contributed to the data collection process. A key factor in guiding the empirical phase of the investigation was the desire to understand environmental adaptation in exchange relationships from the managers’ viewpoint and their perception of important factors in relation to this. In-depth qualitative interviews were therefore used in order to account for the context in which adaptation occurred and to search for a deeper understanding of the participants lived experiences (Marshall and Rossman, 1995). Interviews were conducted using a discussion guide, this acting as a checklist of topic areas (Patton, 1990) to be covered. Various topics from the discussion guide were introduced as interviews progressed, with the resulting questions and the structure of interviews varying depending on the respondents’ answers (Kvale, 1996). While the researchers did not seek to impose a series of theoretical constructs on the data collection and analysis process, the influence

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Table II. Summary of respondents

Case 1

Case 2

Telecoms equipment return system

Plastics recycling Product and packaging redesign; system packaging return systems

Plastic compatible label

Cable supplier Quality Manager Senior Quality Engineer Manager, Customer Business Unit Contracts Manager, Customer Business Unit

Plastics supplier Manager, Plastics Recycling International Marketing Manager Key Account Co-ordinator

Label supplier Senior Specialist, Product Related Environmental Affairs Sales and Marketing Manager, Identification and Labelling Systems

Telecoms services provider Environmental Advisor Senior Buyer, Supply Management

IT company Group Environmental Manager Manager, Recycling and Remarketing Centre Mechanical Designer, PC Housing Supply Centre Supply Centre Manager, PC Housing

IT company Manager, Recycling and Remarketing Centre Environmental Advisor, Product Design Mechanical Designer, PC Housing Supply Centre

Respondents Suppliers Equipment supplier Manager, European Environmental Affairs Manager, Materials and Recycling, Europe Researcher, Environmental Affairs Senior Account Team Manager Commercial Manager Customers Distributor Environmental Advisor Supply Team Manager Product Marketing Manager

Case 3

Case 4

of existing frameworks is inevitable and arguably necessary. The researchers used the IMP Interaction Framework (Ha˚kansson, 1982) to guide the qualitative inquiry within which respondents described their activities, involvement with, and perceptions of selected exchange relationships as well as contribution to specific adaptations. Using an overarching theoretical framework to conduct this qualitative inquiry did not mean that the researchers were directed or led (Morse, 1994) to seek data that only fitted the selected framework; rather, it ensured that interviews were conducted with some structure in mind (Easterby-Smith et al., 1991). This helped determine when new and meaningful data had been obtained (Morse, 1994) that might be relevant to the study. It was through this inductive process that new understanding of trust and adaptation emerged. Data collection and analysis was conducted by one researcher, this allowing for consistency in the approach to interviews and subsequent interpretation of data obtained. A total of 24 semi-structured interviews were completed (on two occasions,

interviews involved two respondents). Interviews lasted an average of two hours, were tape-recorded, and verbatim transcripts were produced from these recordings. Raw data from individual transcripts were grouped into different themes using progressive focussing (Wolcott, 1994) with interviewee experiences being condensed (Kvale, 1996) to create interview summaries. In order to check the accuracy of the researcher’s understanding and validity of this initial analysis of interview data, managers were sent the written summary of their respective interview along with a copy of their interview transcript, which mirrored the structure of the summary document. Four managers requested minor alterations to their accounts. In the main these changes necessitated the removal of names or comments made by respondents that they subsequently considered as flippant or misleading. The picture of a relationship and an adaptation incident created as a result of collaboration between the researcher and respondent (Holstein and Gubrium, 1997) is arguably unique to the one interview situation. Therefore, the risk in using qualitative interviews is that the reality believed to be described in one interview about a relationship and adaptation represents only one view of that reality. This risk of bias and a potentially distorted view was reduced by involving a number of managers from both the supplier and customer organisations. Analysis involved two phases, namely descriptive and cross-case analysis (Patton, 1990). Descriptive case analysis involved the initial manipulation and condensing of interview data, with the researcher deciding what material to use or ignore and what significance to attach to the data (Miles and Huberman, 1994; Strauss and Corbin, 1990). Interview summaries were combined, and, along with secondary data sources (such as industry reports and newspaper articles), used as the basis from which to write a descriptive account of the inter-firm relationship and environmental adaptation. The process of descriptive case analysis is outlined in Figure 1. Connections between interview data and previous research were reviewed on a continuous basis throughout the collection and manipulation of interview data. Once the case studies had been completed, a more comprehensive evaluation was conducted across the cases of the patterns and themes that had started to emerge during the data collection process. This process of identifying and considering themes during data collection and then as part of the cross case analysis is illustrated in Figure 2.

Findings Risk and trust in supplier-customer relationships We previously noted that the nature and role of trust in a relationship is a measure of the risk to which parties find themselves exposed. As can be seen from Table III this vulnerability varied in the exchange relationships, from: . case number 1, where each party accounted for a significant proportion of the other’s turnover and the national market performance of each was dependent on the actions of the other party; to . case number 4, where the material supplied had little direct impact on the customer’s product, the customer typically specified a range of comparable materials from a variety of suppliers, with the customer accounting for a small amount of this supplier’s turnover.

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Figure 1. Descriptive case analysis

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Figure 2. Cross case analysis

All of the exchange relationships that featured as part of the research programme had been in operation for at least ten years with institutionalised patterns of conduct having developed, thus allowing organisational trust in terms of predictability of behaviour to be maintained in spite of the inevitable turnover in boundary spanners over such a time period (Zaheer et al., 1998). As expected, the nature, level and regularity of inter-firm contact varied between relationships, reflecting the importance of outcomes that a company sought to achieve via the relationship and the degree to which these were contingent on the actions of the partner organisation (Sheppard and Sherman, 1998). So for example, in cases 1 and 2, account managers were in almost daily contact, with account teams also meeting on a regular basis to review the ongoing management of the exchange relationship. In case 1, this contact was extended to include staff exchanges, joint product development committees and relationship reviews at the director level. In cases 3 and 4 dealings were much more sporadic, with supplier sales engineers typically initiating contact every three to four months to stay abreast of customer product plans, to identify product opportunities and to keep supplier problem-solving capabilities in the minds of the IT companies’ designers. Acknowledgement of interpersonal trust varied between relationships. In cases 1 and 2 the frequency of contact between managers meant that emotional bonds such as liking associated with interpersonal trust were inevitable and also important contributors to relationship continuity, problem-solving and conflict resolution. While liking and credibility were rated highly in the managers’ descriptions, exchange partner behaviour was depicted as being driven more by self-interest rather than mutual interest. In cases 3 and 4 interpersonal liking did not feature in descriptions, which is perhaps to be expected given the infrequent contact between the supplier and customer companies. Credibility and benevolence, however, were presented as

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Case study relationships Case 2: cable supplier Case 1: telecoms equipment supplier and and telecoms services provider distributor

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Degree of relationship vulnerability High: 30 percent High: exclusive supplier revenue from agreement in key geographic market for telecoms operator; single sourcing of cable distribution of new to connect telecoms equipment network Interaction Relationship administration via intense supply and account team manager exchanges; market, product and relationship development via multi-functional/level contact Interpersonal trust Liking: high Crediblity: high Benevolence: low

Table III. Summary of case study data

Case 3: plastics supplier Case 4: labels supplier and IT company and IT company

Low: low supply/purchase value; indirect supply of engineering plastics for IT hardware

Low: low supply/purchase value; indirect supply of equipment labels

Relationship administration via regular account team manager exchanges

Materials specification via irregular contact between sales engineers and designers

Materials specification via irregular contact between sales engineers and designers

Liking: high Crediblity: high Benevolence: low

Liking: n/a Crediblity: high Benevolence: high

Liking: n/a Crediblity: high Benevolence: high

Environmental adaptation Used equipment return Packaging return and resale system; packaging redesign

Used plastics recycling New product development – plastic compatible label

important aspects of dealings with exchange partner representatives. That credibility featured strongly in all cases is perhaps inevitable; without this, it would be difficult for a relationship to function and for managers to make use of exchange partner problem-solving ability. The differences in perceived benevolence might be explained by the degree of relationship vulnerability, the importance to companies of the relationship outcomes from dealing with exchange partners and the extent to which managers were driven to satisfy only their own objectives from these relationships. Environmental (green) adaptation in supplier-customer relationships As we have noted, companies continually seek to make better use of organisational resources or to respond to external market dynamics. Such efforts may be subject to uncertainty and negative consequences when these attempts are pursued via an exchange relationship because the outcomes expected from adaptations can be partly contingent on the actions of the partner organisation. In case 1, for example, the ability of either company to investigate and introduce a return and remarketing system for used equipment was dependent on the contribution and actions of the other company

to that process. In cases 3 and 4 the ability of the customer to reduce material recycling costs required: . the plastics supplier to advise the customer and to accept material prepared by the customer for recycling in its own manufacturing process; and . the labels supplier to collaborate with the plastics supplier and to develop a new product specifically for this customer. One of the arguments previously made was that institutionalised patterns of behaviour underpin inter-organisational trust (Zaheer et al., 1998). An important issue arises when adaptations being sought require changes to those behaviour patterns. This might simply involve changes in the form and frequency of contact patterns (Seyed-Mohamed and Wilson, 1989) while progress towards the desired change is made. Alternatively the adaptations themselves might require fundamental changes to the basis of the actual exchange relationship. For example: . The materials recycling solution sought by the customer in case 4 necessitated an intense period of exchange episodes involving a range of managers beyond the boundary spanning people. It also involved the formation of a new and collaborative relationship between the labels company and other materials suppliers. . The materials recycling solution sought by the customer in case 3 also required an intense and broad series of exchange episodes. In addition to this, it also involved changes to the exchange relationship itself, with the customer becoming a supplier of used material to the plastics manufacturer. . In case 1, the telecoms return system was of interest to both the manufacturer and distributor and the logistical elements of a return system could be handled via the normal contact patterns. However, both companies were involved in the supply of new equipment only, which meant that the reconditioning and reselling of the used equipment required fundamental changes to the shared values underpinning the exchange relationship. As can be seen, adaptations can necessitate changes to the institutionalised patterns of behaviour that underpin inter-organisational trust. These changes might be short-term, designed to facilitate the adaptation being sought or may be longer-term, being linked to the adaptation itself. What is clear is that renewed efforts to demonstrate trustworthiness can be necessary because of the changes triggered by the drive to adapt and this effort starts with the inter-firm behaviour enacted to realise adaptation. Environmental adaptation and trust Improving the environmental impact of product systems requires the contribution of a variety of organisations. Managers at various points in that system become involved in a repetitive cycle of inter-firm exchanges involving interpersonal contact in which information is shared, negotiations occur on how best to work towards the sought after adaptation and commitments are made by companies to perform specific tasks to facilitate the environmental adaptation. Such a series of activities, in which company representatives interact with each other, respond to and seek to shape the behaviour of their counterparts, is already known to be central to interaction and co-operation and

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contributes to the development of trust (Ha˚kansson, 1982; Ring and Van de Ven, 1994; Svensson, 2005). However, links between such behaviour, which could provide the means for building trust, and its association with environmental adaptation have not been previously made. The experience of, and interaction with, the partner might only last the duration of specific “environmental adaptations”, but they can be significant because the progression and successful conclusion of the collaborative effort is in part determined by the trust that is built or eroded during this effort. Cognitive measures of trust were evident in respondents’ descriptions of their experiences of working with partners on environmental adaptations. Objective judgements of exchange partners’ credibility were made based on whether or not those partners’ words could be relied upon. In case 3, for example, the plastics supplier’s environmental manager formed positive judgements of the customer’s credibility during the collaboration to introduce recycled plastics. These judgements were based on: . the resources (human and financial) provided by the customer; . the availability of these resources throughout the project; and . the timely execution of tasks to which the customer committed. This is contrasted with case 1, where each party commented on the delay by the other in performing tasks associated with the development of a system for the retrieval and resale of used telecommunications equipment. Cognition-based trust can also be built as a result of benevolence experienced during information exchange episodes that form part of the collaborative efforts associated with adaptation. Findings in this investigation suggested that interest, or perceived disinterest, in a partner’s welfare, in seeking joint gain and in performing tasks to facilitate progression affected levels of trust experienced by participants for the duration of manager involvement with exchange partners in bringing about environmental adaptations. For example: . in case 1, the distributor’s desire to determine the geographic availability of used telecommunications equipment suggested self-interest to the original equipment supplier (environmental and commercial managers); . in case 2, the supplier’s (environmental manager) efforts to introduce a reverse logistics system for packaging retrieval faltered due mainly to the customer’s (buyer) reluctance to facilitate the development of the scheme; and . in cases 3 and 4 the processes reflected a clearer attempt (compared to cases 1 and 2) to support the adaptations for the benefits of both parties based on the allocation of tasks, sharing of costs and desire to support and work with the partner organisations. Affect-based measures of trust were also apparent in cases 3 and 4. Although the levels of interpersonal contact in these two cases was normally infrequent and restricted typically to designers, purchasers and account or technical sales managers, the complexity and risk associated with the adaptations being sought triggered the involvement of a broader range of people in regular inter-firm exchanges for the duration of the projects. In these two cases social bonding emerged during the collaboration and was expected to enhance the relationships in the future (mutual

endorsement of company activities, further joint projects and opportunities to expand the customers’ business units targeted by the suppliers). These connections between trust and adaptation are presented in Figure 3, from which the following can be inferred: . interaction can lead to interpersonal trust which in turn affects subsequent interaction episodes; . interpersonal trust informs and is guided by institutionalised patterns of behaviour, namely inter-firm trust; . level of perceived risk and nature of adaptation determine the extent of interaction; . adaptation can be facilitated by interaction and trust; and . adaptation can build trust but, importantly, it can also undermine trust.

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Discussion and managerial implications Handling risk in inter-firm environmental adaptations As we have already noted, previous research has shown that adaptation can contribute to inter-firm trust, yet little consideration has been given to the risk associated with such relationship-specific investments. Whilst some adaptations can be relatively easy to perform, others present a firm with considerable uncertainty or negative consequences either because of the resource investment or the effect on a firm’s activities in realising the adaptation. For example, in case 3, the request by the IT customer that plastic materials from used equipment be recycled and used in subsequent plastic components: . required the plastics supplier to commission research enabling material identification, to set up a new company to manage the sorting, identification and preparation of used plastic; and . resulted in used plastic being reintroduced into the supplier’s manufacturing process. The plastics supplier was motivated to pursue the adaptation initiated by the IT customer and the firm’s resource investment and accommodation of used materials into its manufacturing process signalled its trustworthiness to the IT company. However, where adaptation has the potential to make one party vulnerable in such a way, the other party should contribute to reducing this perceived exposure by demonstrating its interest in and commitment to the sought-after change during efforts to bring about the adaptation. For example, in case 3, the IT company allocated

Figure 3. Connecting trust and environmental adaptation

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operational resources to contribute to initial attempts at material sorting and eventually took over this part of the recycling process from the plastics supplier. In some senses, by contributing to the initial investigations and the eventual solution, the IT customer signalled its own trustworthiness to the plastics supplier. So firms need to: . be aware of and able to deal with possible uncertainty and negative consequences that might be caused by environmental adaptation; and . contribute to efforts to bring about environmental adaptations such that changes are realised and result in positive effects on trust in exchange relationships. Dealing with trust effects of environmental adaptation in interactive relationships Inter-organisational trust is associated with the institutionalised structures, norms and processes linking firms. Our investigation shows that in some instances (and we are talking specifically about environmental adaptations here), the basis of exchange relationships and the institutionalised patterns of behaviour that underpin organisational trust can be challenged. Such challenges can be of a long-term and strategic nature or could have a short-term perspective, being of significance only for the duration during which firms collaborate. Long-term trust effects of environmental adaptation In the case of adaptations that can have a long-term or strategic impact on a relationship, firms might have to rethink the purpose of the relationship, as well as the benefits sought by and the role of each party. For example, in cases 1 and 3, attempts were made to develop reverse-flow logistics systems and strategies for dealing with used equipment and materials. Until these adaptations were attempted, both exchange relationships had centred on the supply of new equipment and material. This original focus of the relationships determined their development, the benefits that the respective parties sought to derive from them and guided the behaviour of those who interacted with exchange partners. Where environmental adaptations challenge the basis of the relationship, it is important that senior managers support attempts to realise the change by discussing, agreeing and communicating internally any changes to the role of each party, as well as performance targets that each is trying to achieve via the relationship. Without such information the behaviour of managers involved in dealing with exchange partners and performing tasks in working towards the adaptation will continue to be guided by roles and targets which could be invalid as a result of the change being pursued. For example: . In case 3, both parties had clearly communicated corporate strategies which, amongst other things, required those in boundary spanning roles to contribute to company environmental performance targets and when opportunity arose, to pursue this via exchange relationships. This contributed to the successful introduction of a material recycling system and the positive experience of those involved in realising the change. . In case 1, neither company had a clearly articulated policy for dealing with and reselling used equipment. The primary interest of both companies, and which was satisfied via the relationship, remained the sale of new equipment. This meant that those responsible in each company for developing the retrieval and resale system via dealings with the exchange partner were guided primarily by

their interest in protecting sales of new equipment. This hampered the development of the system and resulted, for example, in representatives from the manufacturing company judging the distributor as being driven purely by self-interest in trying to protect its market for new equipment. Short-term trust effects of environmental adaptation As well as environmental adaptations challenging the basis of an inter-firm relationship and the institutionalised behaviour associated with it, they can change the form and content of contact patterns (Seyed-Mohamed and Wilson, 1989) between firms. Our research develops this understanding of the effect of adaptation on contact patterns by linking these short-term, temporary adjustments to inter-personal trust. This is significant because trust: . can either be built or eroded as a result of the experience of and interaction with a particular exchange partner; and . may have to be won for the duration of events and activities associated with the efforts to introduce environmental adaptations. This means that those involved in facilitating the environmental adaptation and who consequently become involved in dealing with an exchange partner have to win the confidence of that partner. To do this, managers newly involved in exchanges must be able to demonstrate (as well as possess) a range of expertise that reflects the adaptation, enabling the partner’s queries to be clarified and reassuring the company representatives about an organisation’s problem-solving capabilities. The contribution of relationship managers should not, however, be ignored, even in technical/environmental information exchange episodes. Supplier and customer facing managers will be more familiar with an exchange partner, can advise those dealing with the exchange partner about the relationship and ensure that contact with appropriate managers is made. Such an objective measure of the trustworthiness of those involved in bringing about a sought-after environmental adaptation can be further enhanced. This would include, for example, the timely execution of tasks to which a company has committed. Timeliness in the completion of tasks is particularly important where the partner company is dependent on these tasks being completed in order that it might pursue actions to which it has committed as part of the joint effort to realise the environmental adaptation. Conclusions and areas for further research It is accepted that trust can be central to successful collaboration between companies and to the development of inter-firm relationships. It is also acknowledged that adaptation can help to build trust in business relationships. What this paper has argued, however, is that environmental adaptation can challenge the institutional patterns of behaviour that contribute to inter-organisational trust. Unless this is recognised and action towards environmental adaptation is managed effectively by firms, then attempts at adaptation may fail, trust that can result from adaptation may flounder and efforts to reduce the environmental impact of product systems can be hampered.

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It is widely acknowledged that a degree of vulnerability is necessary for trust to have any purpose in an exchange relationship. Our research shows that in some instances companies can be exposed to new risk as result of environmental adaptation. Adaptations themselves or the activities and behaviour enacted between firms can also undermine the existing processes, behaviour and patterns that exist between firms and that allow managers to develop “confident expectations” regarding the behaviour of an exchange partner. In instances where environmental adaptation exposes firms to new risk or institutionalised patterns of behaviour are challenged, then: . A company must review the objectives that it seeks to achieve via its relationship with an exchange partner and which are signalled to those who are closely involved in dealings with the partner and in the efforts to realise the sought-after change. . Evidence of trustworthiness during joint efforts by firms to realise environmental adaptations must be clearly signalled. Where the partners share information, keep promises, commit resources to facilitate attempts to introduce the adaptation, do not act opportunistically and build close interpersonal relationships, then trust can develop. However, when parties fail to act in these ways then trust does not materialise and the progress towards reducing the environmental impact of product systems/supply chains moves more slowly, is much less successful or fails completely. Such insight, associated with actions to bring about environmental adaptation in the context of exchange relationships, has previously been lacking. In developing understanding of trust and environmental adaptation in business relationships, we used a dyadic approach and qualitative methods of data collection to determine manager behaviour and experience associated with the concepts central to our investigation. Our observation of the importance and effect of trust concentrated on the behaviour and experience of managers in relation to the short-term, collaborative efforts enacted in order to perform environmental adaptations in those relationships. Our research noted the effect reported by managers of the long-term impact on a relationship of trust that was either developed or eroded during those collaborative efforts. Future research needs to make clearer this link between the short-term efforts to adapt and the long-term effect on a business relationship. Amongst the environmental adaptations that featured in the four case study relationships were two projects that had been successfully completed, one that failed and two that were ongoing. Interestingly, both of the completed projects suggested collaborative efforts that encountered little difficulty or obstacles, whilst the ongoing projects featured some conflict and frustration at the apparent self-interest and slowness to act of exchange partners. Such differences in the behaviour and experience of managers involved in the completed and ongoing projects might in part be explained by the tendency to rationalise events after they have occurred, eliminating the “messiness” that is perhaps inherent in trying to successfully conclude projects that involve some risk and parties seek to satisfy different needs. Future research could perform action research in which efforts to adapt are directly observed and are discussed with managers both during and after the process to bring about change. In this way a clearer and more consistent understanding could be developed of the effect of trust on efforts to adapt as well as of the impact on a relationship overall of the

building or erosion of trust during collaborative attempts to adapt and of failed or successful environmental adaptations. Our investigation focused on inter-firm efforts to reduce environmental impact within the electronics industry, and in doing so has shed new light on adaptation and trust in exchange relationships. Given the increased likelihood of regulatory and social pressure related to the environment, and based on our findings, one can conclude that: . adaptation in general can challenge the institutional patterns of behaviour that contribute to organisational trust; and . (new) risk imbalance can adversely affect the development of (further) trust if not appropriately addressed. The validity of this speculation obviously requires further research to support or contradict the interpretation of our data in this way. References Abrams, L.C., Cross, R. and Lesser, E. (2003), “Nurturing interpersonal trust in knowledge-sharing networks”, Academy of Management Executive, Vol. 17 No. 4, pp. 64-77. Anderson, E. and Weitz, B. (1992), “The use of pledges to build and sustain commitment in distribution channels”, Journal of Marketing Research, Vol. 29 No. 1, pp. 18-34. Anderson, J.C. and Narus, J.A. (1990), “A model of distributor firm and manufacturer firm working partnerships”, Journal of Marketing, Vol. 54 No. 1, pp. 42-58. Bonoma, T.V. (1985), “Case research in marketing: opportunities, problems, and a process”, Journal of Marketing Research, Vol. 22, May, pp. 199-208. Bureth, A., Wolff, S. and Zanfei, A. (1997), “The two faces of learning by cooperating: the evolution and stability of inter-firm agreements in the European electronics industry”, Journal of Economic Behaviour and Organisation, Vol. 32 No. 4, pp. 519-37. Camarero Izquierdo, C. and Gutie´rrez Cilla´n, J. (2003), “The interaction of dependence and trust in long-term industrial relationships”, European Journal of Marketing, Vol. 38 No. 8, pp. 974-94. Canning, L.E. (1999), “The introduction of environmental (green) adaptations in supplier-customer relationships. An investigation of inter-firm processes in Britain and Germany”, unpublished PhD thesis, University of the West of England, Bristol. Child, J. (2001), “Trust – the fundamental bond in global collaboration”, Organisational Dynamics, Vol. 29 No. 4, pp. 274-88. Cramer, J. and Schot, J. (1993), “Environmental co-makership amongst firms as a cornerstone in the striving for sustainable development”, in Schot, J. and Fischer, K. (Eds), Environmental Strategies for Industry: International Perspectives on Research Needs and Policy Implications, Island Press, Washington, DC. Cunningham, M.T. and Homse, E. (1986), “Controlling the marketing-purchasing function”, Industrial Marketing and Purchasing, Vol. 1 No. 2, pp. 3-27. Das, T.K. and Teng, B.S. (1998), “Between trust and control: developing confidence in partner cooperation in alliances”, Academy of Management Review, Vol. 23 No. 3, pp. 491-512. Deutsch, M. (1960), “The effect of motivational orientation upon trust and suspicion”, Human Relations, Vol. 13, pp. 123-39. Doney, P.M. and Cannon, J.P. (1997), “An examination of the nature of trust in buyer-seller relationships”, Journal of Marketing, Vol. 61 No. 2, pp. 35-51.

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Wolcott, H.F. (1994), Transforming Qualitative Data: Description, Analysis and Interpretation, Sage Publications, Thousand Oaks, CA. Yin, R.K. (1993), Applications of Case Study Research, Sage Publications, Thousand Oaks, CA. Young, L.C. and Wilkinson, I.F. (1989), “The role of trust and cooperation in marketing channels: a preliminary study”, European Journal of Marketing, Vol. 23 No. 2, pp. 109-22. Zaheer, A., McEvily, B. and Perrone, V. (1998), “Does trust matter? Exploring the effects of inter-organisational and interpersonal trust on performance”, Organizational Science, Vol. 9 No. 2, pp. 141-59. Zand, D.E. (1972), “Trust and managerial problem solving”, Administrative Science Quarterly, Vol. 17 No. 2, pp. 229-39. Further reading Yin, R.K. (1989), Case Study Research, Design and Methods, Sage Publications, Thousand Oaks, CA. About the authors Louise Canning holds a BA (Portsmouth) in French Studies, a MBA (Bradford University) and a PhD in Marketing from UWE Bristol. She held international sales and marketing positions in the steel and engineering industries before embarking on a career in higher education. She is currently employed as Lecturer in Marketing at Birmingham University where her research interests include environmental issues as well as various aspects of relationship management in business-to-business markets. Louise Canning is the corresponding author and can be contacted at: [email protected] Stuart Hanmer-Lloyd holds a BSc (City University) specialising in Econometrics and Mathematical Economics, a MCom in Business Administration (Birmingham University) and a PhD in Marketing from Cranfield University, where he spent ten years as a consultant and researcher. He is Reader in Marketing at the University of Gloucestershire and heads the University’s Centre for Research in Services (CeReS). His current research focuses on trust and distrust in marketing relationships.

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College of Business, Florida Atlantic University, Boca Raton, Florida, USA, and

Patricia M. Doney James M. Barry and Russell Abratt Received November 2005 Revised November 2006 Accepted March 2007

Huizenga School of Business and Entrepreneurship, Nova Southeastern University, Fort Lauderdale, Florida, USA Abstract Purpose – The purpose of this paper is to specify and test factors surrounding trusting relationships between buyers and suppliers in a global, business-to-business services context. In so doing, the paper aims to help to extend relationship marketing theories to this under-researched domain. Design/methodology/approach – A literature review and results of qualitative interviews in the paper provide a conceptual framework for the trust formation process and relational outcomes of trust. The research then tests a model of hypothesized relationships using structural equation modeling. Findings – The paper confirms the influence of trust building behaviors (social interaction, open communications, customer orientation) and service outcomes (technical, functional and economic quality) on trust formation. Trust is shown to have a positive influence on key relational outcomes, loyalty commitment and share of purchases. Research limitations/implications – The sample consists of buyers of aviation component repair services who may be susceptible to idiosyncratic industry pressures. Further, the sample of buyers in 42 countries includes a higher share of buyers from individualist countries. Practical implications – The study provides managerially relevant (“actionable”) results that may help buyers execute customer retention strategies that lead to higher customer profitability. Originality/value – This study adds to the limited literature on building trust in B2B services in a global context. The paper seeks to provide a balanced account of the interpersonal and tangible aspects of trust formation. Keywords Relationship marketing, Trust, Culture, Business-to-business marketing, Services Paper type Research paper

European Journal of Marketing Vol. 41 No. 9/10, 2007 pp. 1096-1116 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560710773363

Introduction In today’s rapidly changing competitive environment, service firms are quickly discovering that far greater profits are yielded from harvesting existing accounts than from cultivating new customers. Indeed, the net increase of the present value of profits resulting from a five percent increase in customer retention varies between 25 percent and 85 percent over different industries (Oliver, 1999). Nevertheless, marketing strategy arguably has had more to do with customer acquisition than with securing repeat business. Practitioners have focused on the traditional marketing mix highlighting product features, price and delivery to “seal the deal”. However the literature on relationship marketing suggests that trust is a central tenet of customer retention. Broadly defined, trust is “one party’s belief that its needs will be fulfilled in the future by actions undertaken by the other party” (Anderson and Weitz, 1989, p. 312). Trust takes on even greater importance in the arena of B2B

services as buyers face the complexity of examining many intangible aspects of a service firm’s offering. Coupled with the uncertain outcome of future performance, buyers must consider aspects of the relationship that suggest a service firm is aligned with the buyer’s future needs and objectives. Indeed, the value of the transaction itself may take a back seat to evidence that a service provider can be trusted. Of particular interest to marketing scholars and practitioners alike are the factors surrounding long-term relationships characterized by trust. Much of the extant research has studied aspects of consumer trust, trust in channel relationships, or trust of the brand. However, there is a lack of research devoted to developing and testing a conceptual model that includes the drivers and outcomes of trust in a B2B services setting. To address this void, this study examines the degree to which social and offer related variables contribute to trust in a B2B services setting. The study also considers important relational outcomes of trust, loyalty commitment and share of purchases. Finally, the conceptual model is tested in a global setting, thereby accommodating cultural influences on relational variables discussed in the literature. The paper is divided into several sections. Starting with a literature review of relevant concepts, the conceptual model is developed and research hypotheses are formulated. The next section outlines the methodology for examining 202 buyers of aircraft component repair services across 42 countries. Results of research hypotheses tested using structural equation modeling are reported and discussed. Finally, implications and limitations of the study are considered, along with suggestions for further research.

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Conceptual model and research hypotheses The conceptual model in Figure 1 depicts social, offer-related and cultural antecedents of trust, and relational outcomes of trust, examined in our study. In the following sections we define trust, detail the logic underlying our conceptual model, and develop our research hypotheses. Selected empirical studies of the determinants and outcomes of trust are listed in Table I.

Figure 1. Model of hypothesized relationships

Table I. Literature review U

U

U

U

U

U U

U U

U

U

U

U U

U

U

U

U

U

U U U

U U U

Offer-related factors Trust outcomes Service Share of quality Value Commitment purchases

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Andaleeb (1996) Anderson and Narus (1990) Anderson and Weitz (1989) Bejou et al. (1998) Chiou et al. (2002) Crosby et al. (1990) de Ruyter et al. (2001) Goodman and Dion (2004) Gounaris and Venetis (2002) Gummerus et al. (2004) Harris and Goode (2004) Johnson and Grayson (2005) Kim and Cha (2002) Leuthesser (1997) Moorman et al. (1993) Morgan and Hunt (1994) Odekerken-Schroder et al. (2000) Rodriguez and Wilson (2002) Sanzo et al. (2001) Saxe and Weitz (1982) Sirdeshmukh et al. (2002) Smith (1998)

Trust antecedents Trust building behaviors Social Open Customer interaction communications orientation

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Trust defined A consensus seems to have emerged in marketing (e.g. Anderson and Narus, 1990; Doney and Cannon, 1997; Dwyer and Oh, 1987; Ganesan, 1994; Kumar et al., 1994; Scheer and Stern, 1992) that trust encompasses two essential elements: (1) credibility; and (2) benevolence. Trust in a partner’s credibility is based on the belief that one’s partner stands by its word, fulfills promised role obligations, and is sincere. Trust in a partner’s benevolence is a belief that one’s partner is interested in the firm’s welfare and will not take unexpected actions that would have a negative impact on the firm. It follows that trust requires a judgment as to the reliability and integrity of the exchange partner (Morgan and Hunt, 1994). The trust literature also suggests that trusting parties must be vulnerable to some extent for trust to become operational. In other words, decision outcomes must be uncertain and important to the trustor (Deutsch, 1962; Moorman et al., 1993; Schlenker et al., 1973). Thus, many researchers view trust as a behavioral intention or behavior that reflects a reliance on a partner and which involves vulnerability and uncertainty (Coleman, 1990; Giffin, 1967; Moorman et al., 1993). We adopt Doney and Cannon’s (1997, p. 36) definition of trust in buyer/supplier relations as “the perceived credibility and benevolence of a target of trust”. This definition is relevant in a B2B services context. Buyers try to reduce the perceived risk surrounding the service purchase by selecting service firms they can trust – those deemed capable of performing reliably and who have demonstrated an interest in the buyer’s well being. Social antecedents of trust Prior studies have focused on social or economic antecedents of trust, but rarely both. Although both social and offer-related antecedents of trust share some common domain, the latter have more to do with the execution of the service delivery transaction. Social behaviors, on the other hand, are more strategic in nature and “entail proactive actions designed to protect and enhance the content of ‘what’ is to be delivered” (Mittal, 1999). Social behaviors that build trust include nurturing an interpersonal relationship (social interaction), sharing information (open communications), and demonstrating an understanding and concern for the buyer’s needs (customer orientation.) Social interaction. The degree to which a supplier and buyer interact has much to do with establishing social bonds. Williams et al. (1998) suggest organizational members “bond” through personal and social relationships with their counterparts in a particular firm. In this study, we examine interactions between buyers and suppliers undertaken primarily for social purposes. Social settings provide an informal environment conducive to building closer interpersonal relationships, and fostering better understanding of mutual needs. However regardless of whether salespeople have contact with buyers for business purposes or for social ones, frequent interaction engenders trust by providing buyers with information that enables them to predict a supplier’s future behavior with confidence (Doney and Cannon, 1997). Social

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interaction may also build trust if the degree of personal friendship and liking shared by the buyer and supplier helps buyers attribute benevolent intentions to suppliers they like and with whom they share common social bonds. Empirically findings concerning the association between social interaction and trust are mixed. Doney and Cannon (1997), Han (1992) and Wilson and Mummalaneni (1986) were unable to support their contention that social interaction between buyers and suppliers leads to trust. Others, however, showed strong support for the relationship (see Table I). H1. A buyer’s trust of a service provider is positively related to frequent social interaction with a service provider’s salesperson. Open communications. Open communications constitute the extent to which buyers and suppliers communicate openly, sincerely, and substantively with customers either formally or informally. Several studies suggest that open communications play an integral role in both traditional industrial selling and relationship marketing (e.g. Anderson and Weitz, 1989; Behrman and Perreault, 1982; Dwyer et al., 1987; Frazier and Rody, 1991; Metcalf et al., 1992). Of particular interest to the current research, studies have shown open communications to be a major precursor of trust (see Table I). According to Sabel (1993), “Because language is so imperfect, an open dialogue is often a necessary means of developing and preserving a shared understanding of the relationship and thus preserves trust”. H2. A buyer’s trust of a service provider is positively related to the degree of open communications with the service provider. Customer orientation. According to Williams and Attaway (1996, p. 39) customer orientation is “a philosophy and behavior directed toward determining and understanding the needs of the target buyer and adapting the selling organization’s response in order to satisfy those needs better than the competition”. This and similar definitions (e.g. Saxe and Weitz, 1982) acknowledge that a customer oriented service provider exhibits behaviors that demonstrate an understanding of a buyer’s needs and a concern for the buyer’s welfare. Such customer-oriented behaviors provide the buyer with informational cues as to the salesperson’s intentions and future behaviors (Williams and Attaway, 1996). Since trust involves a buyer’s willingness to rely on a service provider determined to be credible and benevolent, it follows that customer-oriented service providers – those who understand the buyer’s needs and demonstrate concern for the buyer’s welfare – will be trusted. The association between customer orientation and trust is expressed by one MRO provider we interviewed who commented, “We elect to do much in-house because we don’t trust outside shops [. . .] many don’t have a clue how their repairs impact ‘aircraft return to service’”. Empirically, the positive impact customer orientation has on trust has been documented in the literature. Bejou et al. (1998) demonstrated that customer orientation had a significant impact on the development of trust between consumers and their financial advisers. Saxe and Weitz (1982) showed that a salesperson’s customer orientation was related positively to the extent to which customers trust salespeople. H3. A buyer’s trust of a service provider is positively related to the service provider’s customer orientation.

Offer-related antecedents of trust. In addition to social behaviors that build trust, the service quality literature suggests that buyers seek “hard” evidence of the service provider’s capabilities and competence. This evidence is often revealed after several transactions provide a history of experiences from which the buyer can predict future performance. Consistently, aircraft MRO participants in this study claimed that service providers were evaluated based on examination of scorecards for delivery, quality, and best value. Delivery refers to the speed in which the repair is returned to service, quality is the degree to which a service provider offers a repaired component with a maximum “mean time before failure”, and best value is based on price. In essence, then, service quality has functional (delivery), technical (reliability) and economic (value) dimensions consistent with the definitions proposed by Gro¨nroos (1998). Here, the technical dimension refers to “what” the customer receives, or what they have left after the interaction is over (e.g. reliability of operations, conformance to specifications, and service-need fit). The functional dimension refers to “how” the service is received (e.g. promptness, respect and courtesy). An “economic” dimension constitutes something the buyer gets from the relationship should the relationship be continued (Holmlund and Kock, 1995). This economic dimension resembles the construct known as perceived value. Perceived value (economic quality). The essential purpose for a buyer and supplier to engage in a sustained relationship is working together in ways that add value to both parties (Anderson, 1995). Several studies have found strong ties between value and such outcomes as loyalty or intentions to buy (Harris and Goode, 2004; Grisaffe and Kumar, 2002; Parasuraman and Grewal, 2000). The relationship of value to trust, however, requires an appreciation of value beyond its traditional definition as “a trade-off between benefits and sacrifices perceived by a buyer from a supplier’s offering” (Zeithaml, 1988, p. 14). For example, Woodruff (1997) defines value as the buyer’s perceived preference for and evaluation of those attributes, attribute performances and consequences arising from use that facilitate (or block) achieving the buyer’s goals and purposes in use situations. When extending transaction oriented definitions to include elements of goal orientation and risk reduction (Flint and Woodruff, 2001; Sirdeshmukh et al., 2002), perceived value goes beyond the past experience perceptions inherent in satisfaction surveys to a more futuristic calculation of how well the service provider is likely to satisfy future expectations relative to alternatives. Thus, trust forms based on an assessment of the service provider’s ability to meet the buyer’s expectations. Further, a superior offer conveys an intention to address a customer’s needs by providing benefits greater than those obtainable from alternative suppliers. Sirdeshmukh et al. (2002) found empirical support for the relationship between trust and value in their study of consumer relationships. Similarly, Harris and Goode (2004) found that perceived value had a positive influence on trust in the case of online retailers. H4. A buyer’s trust of a service provider is positively related to value of the service offering. Technical quality and functional quality. Buyers assess the degree to which “deliverables” meet and even exceed their expectations for performance. “If customers perceive service quality favorably, they will have more confidence in the

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provider, which in turn will increase their trust in the service provider” (Chiou et al., 2002). Consistently exceeding the expected performance range is an indication that the service supplier can be relied upon to perform well in the future. This outcome-oriented element of service quality is often referred to as technical or “hard” quality, and resembles “service reliability” measured in the SERVQUAL survey instrument. Especially important in the case of B2B services, technical quality allows buyers to objectively evaluate end results for what Mittal (1999) calls “projected reliability” – how well the service will fulfill its promise. In so doing, technical quality contributes to the service provider’s credibility. When measured as service-need fit or service reliability, technical quality has been found to influence trust. Gounaris and Venetis (2002) found a positive relationship between outcome quality (actual performance of the provider in delivering the service) and trust, especially in mature relationships. Similarly, Odekerken-Schroder et al. (2000) found “attribute-based overall service quality” significantly contributed to customer trust of the service provider. In their study of mutual fund investors, Chiou et al. (2002) found that tangible aspects of service (physical manifestations of service quality) influenced trust. In addition to examining the technical aspects of service deliverables, buyers in B2B services often consider the execution of service delivery transactions in their valuations of service quality. This functional or “soft” quality dimension is measured by service provider accessibility or the degree of customer service surrounding the deliverable. In the case of aircraft MRO, functional quality results when the service provider promptly handles repair requests, treats the customer respectfully, and quickly returns a refurbished unit. Empirically, Gummerus et al. (2004, p. 183) found a positive link between responsiveness – a dimension of functional quality – and trust. The authors concluded “a quick response to requests is likely to increase perceived convenience and diminish uncertainty, and is an important way for companies to show that they are customer-oriented and act benevolently toward customers. Therefore, it affects trust”. Chiou et al. (2002) demonstrated the positive influence that employee-related (“soft”) quality has on trust formation. H5. A buyer’s trust of a service provider is positively related to overall service quality (a composite of technical quality and functional quality). National culture and wealth. A number of cross-cultural studies have shown that some cultures are more predisposed to close relationships than others. For example, Hofstede’s (1980) individualism dimension suggests a distinction between the economic ties of highly individualist societies and the more interpersonal orientation of less individualist, more collectivist cultures. Exploratory studies are justifying the long suspected opportunistic style of American businesses and the more relational orientation of Asian, Latin American and Southern European countries. Such studies often propose that buyers from individualist countries such as the USA place more emphasis on the deal and deliverables and less on sentiments of allegiance than their collectivist counterparts (Barry and Johnson, 1982). Williams et al. (1998) suggest that firms in collectivist cultures form bonds that focus more on personal factors such as trust than on economic rewards and strategic objectives.

A number of studies confirm the relationship between culture and trust (e.g. Downes et al., 2002; Furrer et al., 2000; Hewett and Bearden, 2001; Peterson and Shimada, 1978; Rodriguez and Wilson, 2002; Sullivan and Peterson, 1982; Williams et al., 1998). Hewett and Bearden’s (2001) study of subsidiary relationships concludes that individualism moderates the effect of trust on relational behaviors. Williams et al. (1998) suggest that firms in collectivist cultures form bonds that focus more on personal factors such as trust, than on economic rewards and strategic objectives. A study by Rodriguez and Wilson (2002) on Mexican (highly collectivist) and US (highly individualist) managerial differences reinforces the notion that buyers in individualist nations base their relationships more on economic and strategic cooperation, whereas buyers from collectivist countries perceive the social and affective dimensions of trust as the driving force in a relationship. Sullivan and Peterson (1982) note the much greater importance Japanese managers place on trust compared to their US counterparts. Hofstede (1980) has argued that individualism is related to a country’s level of economic development. He found that wealthier countries tended to be more individualist than poorer ones. Consistent with the cross-cultural literature and the correlation between culture and economic development, some researchers have adopted measures of national wealth or economic development as a substitute for cultural scoring (Husted, 1999). Using a variable tied to recent economic activity addresses concerns about a possible change in the original individualism scoring as societies become more industrialized. Accordingly, we use national wealth as a proxy for culture. H6. National wealth is negatively related to a buyer’s trust of a service provider. Relational outcomes Previous studies support the premise that because relational customers are highly satisfied they are a firm’s most profitable customers, spending more money, more frequently and often buying more products or services (Fornell, 1992; Griffin, 1995; Parasuraman et al., 1991; Reichheld and Sasser, 1990). Accordingly, relational outcomes included in this study include loyalty commitment and share of purchases. Loyalty commitment. Loyalty commitment refers to the sense of unity binding buyers to suppliers (Kim and Frazier, 1997). It expresses the extent to which parties like to maintain their relationships (Geyskens et al., 1996) and includes a normative component as well (the degree of obligation a buyer feels for the supplier). Rooted in relational exchange theory, loyalty commitment is more concerned with emotional content and with preserving and recognizing the traditional values of an ongoing relationship (Gilliland and Bello, 2002). According to Hirshman (1970), firms bound by sentiments of allegiance and faithfulness are tied to their partners for reasons beyond pure economic gain. This sentiment of allegiance makes it difficult to exit a relationship because “as a rule, loyalty holds exit at bay” (Hirshman, 1970, p. 78). Dwyer et al. (1987) point out that the loyalty attachment passes through a series of incremental stages in which partners must provide signals of goodwill, act in good faith, and prove their allegiance – behaviors indicative of trusting relationships. Studies by de Ruyter et al. (2001) and Morgan and Hunt (1994) confirm a positive relationship between trust and loyalty commitment. H7. A buyer’s trust of a service provider is positively related to loyalty commitment.

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Loyalty commitment and social interaction. Where social bonds are highly valued such as in trusting relationships, they enhance the probability that the relationship between the actors will endure (Hennig-Thurau et al., 2002). Researchers have suggested that social benefits (such as those resulting from social interaction) are positively related to the buyer’s loyalty commitment to a relationship (Berry, 1995; Goodwin and Gremler, 1996; Oliver, 1999). H8. A buyer’s social interaction with a supplier’s salesperson is positively related to loyalty commitment. Share of purchases. Suppliers seek a high share of their buyer’s business since selling and servicing costs are spread over a larger revenue base, thereby providing economies of scale (Leuthesser, 1997). Several conceptual studies support the premise that relational customers can be expected to allocate a higher share of their business to suppliers. Parasuraman et al. (1991) suggested that often such buyers spend more with suppliers and buy additional products or services. However, empirical findings have not consistently supported a link between trust and share of purchases. In their studies of relationship quality, a higher order construct that includes trust, Leuthesser (1997) as well as Kim and Cha (2002) found a positive link between relationship quality and supplier share of business. However, Crosby et al. (1990) and Boles et al. (2000) did not support these findings. Johnson and Grayson (2005) attributed this inconsistency to the distinct impacts that affective and cognitive behaviors have on sales effectiveness (a construct related to share of purchases). By isolating the affective states (e.g. satisfaction dimension of relationship quality) from their study domain, the authors demonstrated that cognitive trust did in fact influence sales effectiveness. H9. A buyer’s trust of a service provider is positively related to share of purchases. Methodology Data for this study were collected through self-administered questionnaires mailed to buyers of aviation component repair services in 42 countries. A country distribution of the responses scored by Hofstede’s individualism dimension is shown in the Appendix, Table AI. Following three waves of e-mails and posted surveys supported by two follow-up broadcast fax reminders and a pre-notification letter, 202 usable responses were collected. The effective response rate is 14 percent. Though somewhat low, this rate is not unusual for industrial survey research involving multi-country participation (Dillman, 2000; Harzing, 2000). Follow-up phone calls to a number of non-respondents revealed a vast majority unwilling to participate due to lack of interest, lack of time (especially in light of airline business pressures), or a concern that management would frown on their taking company time to complete the survey. Measures Scales used in this research were derived from measures reported in the literature and adapted to suit the context of the study (please refer to Table II for sources of scales and individual items). The initial pool of items was administered to 16 providers of aircraft component repair services from around the world. Respondents were asked to comment on language suitability and appropriateness of items to the industry domain. Changes to the questionnaire included a list of domain qualifiers. For example, the

Source(s)

Construct and survey items

Doney and Cannon (1997)

Social interaction (Formative scale created by averaging the following items) A strong friendship has developed with this supplier over the years Our relationship with this supplier goes beyond business and often involves social time together We enjoy each other’s company We share a common bond We are both interested in each other’s family and personal life

x1

Smith and Barclay (1997)

Open communications There are excellent communications between our firms so there are never any surprises that might be harmful to our working relationship

x2

Saxe and Weitz (1982) (SOCO scale, domain adapted from focus group)

Customer orientation This supplier understands the sense of urgency we face every day This supplier understands what it takes for our business to succeed over the next few years

SERVQUAL scales for empathy

Dodds et al. (1991); Grisaffe and Kumar (1998)

SERVQUAL scales for reliability, responsiveness (domain adapted)

This supplier understands how their services impact our operation We could count on this supplier to consider how their decisions and actions affect us in the future Perceived value Service from this supplier is typically considered a good buy At the price shown, service from this supplier is typically very economical/uneconomical Service from this supplier is typically a good/poor value for the money At the price expected, service is typically very acceptable/unacceptable Overall service quality This supplier’s service personnel work quickly and efficiently This supplier’s service personnel competently handle most of our requests This supplier’s firm has fast, efficient procedures for handling our repair requests The work performed by this supplier typically meets our expectations for life cycle reliability Turnaround time for work performed typically meets our expectations for service delivery In terms of services leading to the desired result, this supplier compares favorably to its competitors This supplier’s employees treat us with respect National Wealth 2003 GDP per capita (using purchasing power parity) Trust

Indicator

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x3 x4 x5 x6 x7 x8 x9 x10

x11 x12 x13 x14 x15 x16 x17 x18 (continued)

Table II. Measures and key summary statistics for supplier trust, its antecedents and outcomes

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Source(s)

Ganesan (1994); Morgan This supplier is not always honest with us (R) and Hunt (1994); Doney We believe the information that this supplier provides us This supplier is genuinely concerned about our business success and Cannon (1998) When making important decisions, this supplier considers our welfare as well as its own We trust this supplier keeps our best interests in mind Gilliland and Bello (2002) Geyskens et al. (1996)

Table II.

Construct and survey items

Crosby et al. (1990) (domain adapted cross-sell index)

Loyalty commitment Our loyalty to this supplier is a major reason we continue to work with this supplier We want to stay associated with this supplier because of our allegiance to them We intend to continue working with this supplier because we feel they are “part of the family” Given all the things our two firms have done for each other over the years, we feel we ought to continue our relationship with this supplier Share of purchases Compared to alternative repair shops, this supplier services a larger volume of component part numbers

Indicator y1 y2 y3 y4 y5 y6 y7 y8 y9

y10

questionnaire was designed to restrict services to non-mission critical component repairs for the sake of performance evaluation consistency. Finally, scale items for customer orientation were derived from in-depth interviews. Respondents were asked to comment on the items that best reflected the construct as well as wording appropriate for the indicators. Items included seven-point Likert scales typically anchored on “strongly agree” and “strongly disagree”. Data analysis and results The conceptual model depicted in Figure 1 was tested using LISREL 8 (Jo¨reskog and So¨rbom, 1996). All analyses used maximum likelihood estimation and the observed covariance matrix. Results are reported in the form of the completely standardized solution. Measurement model Following the paradigm of scale development advocated by Gerbing and Anderson (1988), we developed a measurement model before estimating the structural paths to test hypothesized relationships. We began our assessment of the measurement model by assessing discriminant validity between the two underlying dimensions of trust, credibility and benevolence. Although some researchers have found evidence of discriminant validity, these two dimensions of trust are highly correlated (see also Ganesan, 1994; Kumar et al., 1994). Using standard tests, we failed to establish discriminant validity between these constructs (see also Doney and Cannon, 1997; Larzelere and Huston, 1980). Perhaps while credibility and benevolence are conceptually distinct, in relationships between buyers and service providers they may be so intertwined that in practice they are operationally inseparable. Consequently

in future analyses, trust was considered to be a unidimensional construct including items that tapped both the credibility and benevolence aspects of trust. Next, scales were estimated simultaneously in a multiple-factor model. Specifically, a measurement model was estimated in which each item was restricted to load on its a priori factor, and the factors themselves were allowed to correlate. The measurement model was evaluated for unidimensionality, reliability, and convergent and discriminant validity. Tables III and IV summarize the LISREL confirmatory factor analysis results for the measurement model.

Trust determinants and outcomes 1107

Hypothesis testing Given our conceptualization of the constructs was supported empirically by the measurement model, we proceeded to evaluate the hypothesized structural relationships. Results of the model estimation are provided in Figure 2. All factor loadings (not shown) are similar to those reported for the measurement model and statistically significant. Fit statistics show that model fit is acceptable. Although the chi-square statistic is statistically significant ( x 2 ð330Þ ¼ 654; p ¼ 0:00), other fit statistics (normed x 2 , 2; NNFI ¼ 0:91; CFI ¼ 0:92; IFI ¼ 0:92; RMSEA ¼ 0:07) suggest the model provides a reasonable fit to the data. Results indicate that variables Construct

Items

Socinteract Opencomm Custorient

x1 x2 x3 x4 x5 x6 x7 x8 x9 x10 x11 x12 x13 x14 x15 x16 x17 x18 y1 y2 y3 y4 y5 y6 y7 y8 y9 y10

Pervalue

Offerqual

Natwealth Trust

Loyalty

Sharepurch

Factor loading

t-value

1.00 1.00 0.84 0.83 0.89 0.80 0.78 0.71 0.77 0.87 0.84 0.85 0.83 0.66 0.76 0.71 0.79 1.00 0.70 0.80 0.84 0.90 0.75 0.77 0.84 0.87 0.79 1.00

20.0 20.0 14.2 14.0 15.7 13.4 12.6 11.1 12.6 15.1 14.5 14.6 14.3 10.2 12.5 11.3 13.9 20.0 11.0 13.4 14.5 16.3 12.2 12.6 14.1 15.0 12.9 20.0

Notes: x2ð318Þ ¼ 636; p ¼ 0:00; normed x 2 ¼ 2; NNFI ¼ 0:90; CFI ¼ 0:92; IFI ¼ 0:92; RMSEA ¼ 0:07

Table III. Measurement model results

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3. Custort 4. Pervalue 5. Offerqual 6. Natwealth 7. Trust 8. Loyalty 9. Patronage

Table IV. Measurement model results

1.00 0.49 (0.05) 0.55 (0.05) 0.55 (0.05) 0.51 (0.05) 20.12 (0.07) 0.69 (0.04) 0.65 (0.05) 0.28 (0.06)

2

Factor intercorrelations (standard errors) 3 4 5 6 7

8

9

1.00 0.53 (0.05) 0.56 (0.05) 0.57 (0.05) 0.07 (0.07) 0.64 (0.05) 0.40 (0.06) 0.22 (0.07)

1.00 0.66 (0.05) 0.74 (0.04) 20.25 (0.07) 0.79 (0.03) 0.45 (0.06) 0.37 (0.06)

1.00 0.76 (0.04) 20.35 (0.07) 0.76 (0.04) 0.41 (0.07) 0.35 (0.07)

1.00 20.27 (0.07) 0.77 (0.04) 0.40 (0.07) 0.44 (0.06)

1.00 2 0.25 (0.07) 2 0.06 (0.07) 2 0.20 (0.07)

1.00 0.58 (0.07) 0.35 (0.07)

1.00 0.20 (0.07)

1.00

Notes: x2ð318Þ ¼ 636; p ¼ 0:00; normed x 2 ¼ 2; NNFI ¼ 0:90; CFI ¼ 0:92; IFI ¼ 0:92; RMSEA ¼ 0:07

Figure 2. Structural equation model results

included in the model explain a relatively large portion of the variance in trust (80 percent) and loyalty (45 percent). However, only 14 percent of the variance in patronage is explained. Taken together, these results suggest that the model is a reasonable basis upon which to test our research hypotheses. Results The first three hypotheses that predicted social behaviors are positively related to trust were supported by these data. As expected, frequent social interaction with a supplier’s

salesperson (g11 ¼ 0:24; t ¼ 4:5), open communications between firms (g12 ¼ 0:15; t ¼ 2:6), and a supplier’s customer orientation (g13 ¼ 0:31; t ¼ 4:0) have statistically significant, positive relationships with a buyer’s trust of a service provider. Both hypotheses pertaining to offer related antecedents of trust are also supported. Perceived value of the service (g14 ¼ 0:20; t ¼ 2:4) and overall service quality (g15 ¼ 0:17; t ¼ 2:0) are positively related to a buyer’s trust of a supplier. However contrary to expectations we found no statistically significant relationship between national wealth – our proxy for culture – and trust of the supplier. As for relational outcomes, study results demonstrate that trust is significantly related to loyalty commitment (b21 ¼ 0:24; t ¼ 2:7) and share of purchases (b31 ¼ 0:38; t ¼ 5:2). Our research also supports the mediating influence trust has on the linkage between social interaction and loyalty commitment. As expected, social interaction has both a direct effect (g21 ¼ 0:48) and an indirect effect (0.06) on loyalty commitment. Discussion Our findings show that buyers assess trust building behaviors as well as tangible aspects of the service offering in order to gauge a service provider’s trustworthiness. However, social behaviors seem to dominate the trust building process. An examination of standardized coefficients reveals that customer orientation (0.31) has almost twice the effect of offer quality (0.17) in building trust. Further, social interaction impacts loyalty commitment directly, as well as indirectly through trust. We also find that trust plays an important part in developing loyalty commitment and expanded business opportunities. Therefore it is safe to say that buyers do not necessarily develop loyalty to, nor extend broader business opportunities to service providers based solely on superior offerings. These findings have important implications for marketing theory and practice. Theoretical implications Several theoretical implications can be derived from our findings. Our first contribution stems from including both social and economic antecedents of trust in the same study. Prior research has focused on economic or social antecedents of trust, but rarely both. However the theoretical development of our model and study findings suggest a complex interplay of social and economic factors. Starting with social factors, this research confirms that trust is formed via a service provider’s relational behaviors. Such findings are consistent with much of the extant literature that suggests trust is developed through credible and benevolent behaviors. With respect to economic factors, it is clear that aspects of a service provider’s offering do in fact influence a buyer’s trust of the supplier. Measures of technical quality and calculations of cost savings over repeated service episodes (i.e. perceived value) may provide evidence of credibility and benevolence – in other words, the buyer can be trusted. This has not been well documented in the trust literature, much of which ignores aspects of the offer. Our findings also contribute to the burgeoning relationship marketing literature by further documenting trust’s role as a relationship enhancer. Trust is shown to impact key relationship marketing outcomes, loyalty commitment and share of purchases. Additionally, we demonstrate that trust mediates the influence that social interaction

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has on loyalty. Finally, trust is shown to mediate the influence of offer quality and value on relational outcomes. In effect, a buyer’s loyalty and patronage stem from the trust account that accumulates over several episodes of a service provider’s demonstrated quality and value. Despite the importance of services in the global economy, there is scant research that addresses building and maintaining trusting relationships in a B2B services context. This study extends other research on trust by exploring its role in this relatively under-explored context. As some suggest, the service orientation of a relationship may actually temper the development and influence of trust (Palmatier et al., 2006). For example, services are generally perceived as less tangible than products. This intangibility may make the benefits of trust more critical because evaluations often are ambiguous (Palmatier et al., 2006). As a result, the role trust plays in fostering a long-term relationship may take on added importance in a services context. Finally, by examining the antecedents and outcomes of trust in a multi-national setting the resulting model is more culturally inclusive. This universal perspective contributes to a deeper understanding of relationship building that is often thwarted by studies from single country settings. Managerial implications Several buyers interviewed in this study recounted examples where betrayals of trust led to eventual termination of service providers. Others cited evidence of competence and cooperation as requirements to expand the breadth of business awarded service providers. This supports study findings that the key to achieving longevity and business expansion is to create a service atmosphere that promotes a buyer’s trust of the service provider. In order to build trust, our study suggests that service providers invest in both economic and social aspects of the transaction. During interviews several study respondents noted they were pleased with the historical evidence of value and performance exhibited by their focal service provider (i.e. the economic aspects of the transaction). However, these same buyers expressed considerable frustration as to the service provider’s lack of customer orientation. Some claimed that service providers were clueless as to the buyer’s mission tensions. Others made reference to “hit and run” tactics where service providers showed up in droves during proposal times but disappeared shortly thereafter. This supports our study findings that social interaction, open communication and customer orientation are important antecedents of trust. Taken together, these findings underscore the need to train service employees to recognize the “intangible” facets of relationship marketing that build trust accounts with their buyers over time. For example, since social interaction plays a central role in developing trust and building loyalty, service employees should contact their customers often. Social interaction helps buyers gauge a service provider’s trustworthiness. The more frequent the interaction, the more assured the buyer becomes that the service provider’s intentions are in the buyer’s best interests. Similarly, more frequent and open communications between buyers and service providers reduce uncertainty and increase mutual understanding. Buyers may confer trust based on candid discussions with their suppliers. Finally, our results show that of

the antecedents studied, customer orientation is the strongest contributor to trust. Therefore, it is crucial that salespeople be trained in the interpersonal behaviors of needs discovery and response adaptation that establish trust. The emphasis on relational behaviors should not undermine the importance of offer value and technical quality. While a superior offer is not sufficient to garner a greater share of a buyer’s business or earn a buyer’s loyalty, building trust requires that relational behaviors be augmented by “hard” evidence that a buyer’s future needs will be met. Perhaps buyers “keep score” of a service provider’s competitiveness and continuous superior performance as tangible references by which to gauge the supplier’s willingness and ability to meet future needs. In summary, it behooves service managers to train and compensate service employees based on trust-building behaviors as well as the competitiveness of the service offering. Study limitations The literature on culture would lead us to believe that buyers evaluating suppliers in more goal-oriented, individualist cultures value economic rewards attainable through the relationship – such as the deal and deliverables – over the relationship itself. In group-oriented, collectivist societies on the other hand, cultural norms and values resonate more with deriving value from the relationship itself and supplier selection based on trust between the partners. Our operationalization of national culture as GDP per capita did not have a statistically significant influence on buyer trust. In retrospect, our failure to obtain results may be due to the B2B services context of our study. As previously noted, intangibility may make the benefits of trust more critical for services because evaluations often are ambiguous (Palmatier et al., 2006). Similarly, trust may take on added importance in B2B markets where a firm’s success depends directly on its working relationships. Thus it is possible that B2B service encounters elevate the importance of trust regardless of cultural norms and values. Suggestions for future research Results of this study support the influence of trust on loyalty commitment and expanded patronage in a B2B services setting. Future research might consider the part trust plays in promoting other important relational outcomes in this context (e.g. relationship longevity, positive word of mouth). Additional study also is needed on other “relational” antecedents of trust (e.g. goal congruency, shared values). Finally, given our inability to demonstrate the impact of culture using GDP/capita, future studies might include other economic variables or measures of cultural distance. Together, such studies would enrich the field of B2B services marketing by improving the explanatory power of models predictive of buyer trust. References Andaleeb, S. (1996), “An experimental investigation of satisfaction and commitment in marketing channels: the role of trust and dependence”, Journal of Retailing, Vol. 72 No. 1, pp. 77-93. Anderson, E. and Weitz, B. (1989), “Determinants of continuity in conventional industrial channel dyads”, Marketing Science, Vol. 8 No. 4, pp. 310-23.

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Table AI. Distribution of respondent countries

Appendix Country (individualism score)

GDP per capita (PPP, 2003)

Cases

Abu Dhabi (25) Australia (90) Austria (55) Belgium (75) Bhutan (52) Brazil (38) Canada (80) Chile (23) China (20) Croatia (33) Czech Republic (58) Denmark (74) Finland (63) France (71) French Polynesia (32) Germany (67) Greece (35) Greenland (74) Hong Kong (25) Iceland (60) India (48)

$23,200 $28,900 $30,000 $29,000 $1,300 $7,600 $29,700 $9,900 $5,000 $10,700 $15,700 $31,200 $27,300 $27,500 $17,500 $27,600 $19,900 $20,000 $28,700 $30,900 $2,900

1 12 1 1 2 2 20 1 1 1 (1) 3 2 3 1 8 1 2 1 2 1

Country (individualism score) Israel (54) Italy (76) Japan (46) Jordan (30) Latvia (39) Luxembourg (60) Macau (20) Malaysia (26) Mexico (30) Nepal (30) New Zealand (79) Norway (69) Portugal (27) Slovakia (52) Spain (51) Sweden (71) Switzerland (68) Taiwan (17) Turkey (37) UK (89) US (91)

GDP per capita (PPP, 2003)

Cases

$19,700 $26,800 $28,000 $4,300 $10,100 $55,100 $19,400 $9,000 $9,000 $1,400 $21,600 $37,700 $18,000 $13,300 $22,000 $26,800 $32,800 $23,400 $6,700 $32,800 $37,800

1 2 1 2 1 1 1 1 1 1 1 4 2 1 5 1 4 2 2 8 93

About the authors Patricia M. Doney is Associate Professor of Marketing in the Barry Kaye College of Business at Florida Atlantic University, Fort Lauderdale, USA. Her work has been published in the Journal of Marketing, Journal of the Academy of Marketing Science, Journal of Retailing, Journal of International Marketing, Journal of Macromarketing and Academy of Management Review, among others. Patricia M. Doney is the corresponding author and can be contacted at: [email protected] James M. Barry is Associate Professor of Marketing in the Huizenga School of Business and Entrepreneurship at Nova Southeastern University, Fort Lauderdale, USA. His work has been published in Journal of Services Marketing, Journal of Business & Industrial Marketing, Academy of Marketing Science Conferences, and American Marketing Association Educator Conferences. Russell Abratt is Associate Dean and Professor of Marketing in the Huizenga School of Business and Entrepreneurship at Nova Southeastern University, For Lauderdale, USA. His work has been published in The Journal of Advertising Research, Business Horizons, Journal of Retailing and Consumer Services, Journal of Product & Brand Management, Journal of Brand Management, Corporate Reputation Review, European Journal of Marketing, Industrial Marketing Management, and Journal of Marketing Management, among others.

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Personal characteristics, trust, conflict, and effectiveness in marketing/sales working relationships Graham R. Massey School of Marketing, University of Technology, Sydney, Australia, and

Trust, conflict and effectiveness

1117 Received November 2005 Revised November 2006 Accepted March 2007

Philip L. Dawes Wolverhampton Business School, University of Wolverhampton, Wolverhampton, UK Abstract Purpose – The key objective of this research is to test how two trust dimensions (cognition-based trust and affect-based trust) mediate the effects of three personal characteristics (psychological distance, the marketing manager’s sales experience, and the marketing manager’s relative level of formal education) on the following outcome variables: dysfunctional conflict, functional conflict, and perceived relationship effectiveness. Design/methodology/approach – Drawing on the interaction approach, the paper develops a conceptual framework to better understand the nature of the working relationship between marketing managers and sales managers. In total, it develops and test 13 hypotheses. Partial least squares was used to assess the validity of the measures, and to estimate the structural model. Using a cross-sectional design, data were collected from 101 marketing managers in Australia. Findings – The hypothesized model has high explanatory power and it was found that both trust dimensions strongly affected all three outcome variables. However, though both forms of trust were positively related to perceived relationship effectiveness, affect-based trust had the strongest impact on this outcome. The results also confirm that both cognition- and affect-based trust have negative effects on dysfunctional conflict, and strong positive effects on functional conflict. In addition to these new findings, the paper shows that while psychological distance has a strong negative impact on cognition-based trust, it has no impact on affect-based trust. Moreover, it was found that when marketing managers had greater levels of sales experience, it increased their affect-based trust but it had no impact on cognition-based trust. Finally, the marketing manager’s relative level of formal education had no impact on either forms of trust. Originality/value – This is one of a handful of studies to employ a large-scale empirical approach to examine the neglected cross-functional relationship between marketing and sales. Also, it is one of the few studies to examine the effects of cognition-based trust and affect-based trust on performance outcomes. Keywords Channel relationships, Marketing, Sales, Trust, Conflict Paper type Research paper

Introduction Cross-functional integration involves different work units interacting and exchanging work, resources, and assistance (Ruekert and Walker, 1987a). Importantly, repeated Each author contributed equally to this research.

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interactions between members of separate work units can lead to the development of “cross-functional relationships” (CFRs), which are crucial to the internal coordination and efficient operation of firms. Moreover, CFRs are integral to Porter’s (1985) value chain, internal marketing (e.g. Ballantyne, 1997), market orientation (e.g. Kohli and Jaworski, 1990), and customer relationship management (Ryals and Payne, 2001; Winer, 2001). The performance of individual managers, work units, and the firm itself can therefore hinge on the effectiveness of a firm’s CFRs. This topic is therefore of significant academic and managerial importance (Houston et al., 2001). Our paper focuses on individual-level factors that affect CFRs between marketing managers and sales managers. We do this because CFRs are established and enacted at the individual level (see Ruekert and Walker, 1987a). Also, while structural and bureaucratic methods of coordination can also affect CFRs, models emphasising these factors are likely to be “undersocialised”, i.e. overstating the rational economic aspects, and understating the social aspects of these relationships (see Granovetter, 1985). Accordingly, the purpose of our research is to test a model of individual-level influences on the marketing/sales CFR. Specifically, we use two different forms of interpersonal conflict as dependent variables (dysfunctional conflict and functional conflict), along with a third dependent variable – perceived relationship effectiveness. Our predictor variables are also conceptualised and measured at the individual-level. These include two forms of interpersonal trust (cognition- and affect-based trust), the extent of the marketing manager’s sales experience, the level of the marketing manager’s formal education, and the degree of psychological distance between the marketing manager and the sales manager. In this study we examine the effectiveness of CFRs, and regard a CFR as effective if there is low dysfunctional conflict, high functional conflict, and high perceived relationship effectiveness. We chose these outcome variables for various reasons. First, the effectiveness of CFRs is known to be strongly positively related to hard outcomes such as new product success (e.g. Souder, 1981, 1988). Second, although dysfunctional conflict has received significant attention in the literature, and its detrimental effects are well known (Menon et al., 1996), a growing body of literature suggests that not all conflict is dysfunctional (De Dreu and Weingart, 2003; Jehn, 1995; Reid et al., 2004), and that under some circumstances, conflict can be beneficial (Amason, 1996). Understanding these forms of interpersonal conflict is therefore important when studying cross-functional team effectiveness (for a synthesis of current models of conflict, see Jehn, 1997). An important aspect of our model is that we treat the two trust dimensions as variables that mediate the effects of three personal characteristics on three dependent variables. We do this because of the growing recognition of the importance of trust in building effective relationships of all types, whether buyer/seller (e.g. Morgan and Hunt, 1994), or cross-functional (e.g. McAllister, 1995). The context of this research is marketing/sales CFRs, which we chose because it is among the most important of marketing’s CFRs, but one of the least explored (Dewsnap and Jobber, 2000). Also, this CFR is vital because the sales function implements marketing’s strategies at the operational level (Strahle et al., 1996). However, despite our narrow research context, we believe our findings are generalisable to other marketing CFRs (e.g. marketing/IT), and to non-marketing CFRs (e.g. manufacturing/purchasing).

In developing our model, we draw on the interaction approach as our main theoretical framework. The interaction approach is based on exchange theory (Blau, 1964) and game theory (Axelrod, 1984) and focuses on understanding how factors such as interpersonal trust predict satisfaction, performance, and relationship continuity in various contexts, e.g. buyer-seller and channel relationships (see Anderson and Narus, 1990; Moorman et al., 1993; Morgan and Hunt, 1994), and cross-functional relationships (e.g., Moenaert et al., 1994; Ruekert and Walker, 1987a). We make four contributions to the literature with this study. First, the majority of previous studies examine conflict at higher levels of analysis, for example interdepartmental conflict (e.g. Barclay, 1991; Maltz and Kohli, 2000; Menon et al., 1996; Morgan and Piercy, 1998); however, we focus on interpersonal conflict. This distinction seems important because the antecedents and consequences of conflict at these two levels of analysis may differ. Second, existing studies of marketing relationships only tend to examine the dysfunctional form of conflict, ignoring the functional form. While the literature contains much theoretical discussion relating to functional conflict (e.g. Baron, 1991; Tjosvold, 1985), few studies have measured or modelled this construct. Although Menon et al. (1996) examined interdepartmental functional conflict, and other studies (e.g. Rawwas et al., 1997) have measured an individual’s functional conflict and its effect on their satisfaction with a selling firm, we could locate no studies that have examined the antecedents and consequences of functional conflict exclusively at the individual level. Our study therefore adds to the scant evidence on this topic. Third, in contrast to most other studies examining interpersonal trust within CFRs, we treat trust as a bi-dimensional construct consisting of cognitive and affective components. This is important because there is good evidence that these two forms of trust are qualitatively different (e.g. McAllister, 1995). Fourth, with the exception of a recent study by Dawes and Massey (2005) examining the impact of structural, individual, and communication variables on dysfunctional conflict in the marketing/sales CFR, most of the literature on this CFR is anecdotal, conceptual, or normative. So by quantifying the amounts of interpersonal trust, dysfunctional and functional conflict, and perceived relationship effectiveness, we provide empirical findings to begin to fill this gap in the literature. Our paper is structured as follows. First, we present our conceptual framework, in which we define the key constructs and justify their inclusion in our model. Next we specify our structural model and develop our hypotheses. We then describe our research methods, and report the results of our empirical tests. We conclude by discussing the implications of our research, its limitations, and possible topics for future research. Conceptual framework Drawing on the interaction approach, our model, which is depicted in Figure 1, employs two interpersonal trust constructs, cognition- and affect-based trust, to explain functional conflict, dysfunctional conflict, and perceived relationship effectiveness. Our two trust constructs are in turn predicted by three personal characteristics of the focal marketing manager: (1) the marketing manager’s level of formal education; (2) the marketing manager’s sales experience; and

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Figure 1. Conceptual model

(3) the degree of psychological distance between the marketing manager and their counterpart sales manager. A review of the literature (e.g. Gilbert and Tang, 1998; Gill et al., 2005; Mayer et al., 1995) indicates that many personal characteristics could have been chosen as antecedents of trust. However, an important objective of our research was to build on the scant empirical literature in the specific area of the relationship between marketing and sales. Accordingly, the inclusion of the three independent variables in our study was largely based on the research by Dawes and Massey (2005) which had focused on explaining dysfunctional conflict in this relationship. More specifically, the research by Dawes and Massey (2005) directly linked four personal characteristics – level of formal education, the marketing manager’s sales experience, marketing training, and psychological distance – to dysfunctional conflict. Here, however, we link three of these personal characteristics to trust. We omitted marketing training as Dawes and Massey (2005), along with research by Maltz and Kohli (2000), found that this variable did not help explain marketing’s conflict with other functional units. Dependent variables Perceived relationship effectiveness This variable is drawn from Van de Ven (1976), and is defined in terms of how worthwhile, equitable, productive, and satisfying the marketing manager perceives his/her working relationship with the sales manager during a specific cross-functional project. We chose this psychosocial outcome because: . past studies of working relationships have also focused on subjective outcomes (e.g. Anderson and Narus, 1990); and . objective measures of effectiveness (e.g., sales volume) may not accurately reflect the quality of a relationship due to confounding factors such as long sales cycles (Smith and Barclay, 1997). Dysfunctional and functional conflict A contemporary view amongst various streams of literature is that conflict can have dysfunctional and functional forms (Amason, 1996). The original conceptualization of conflict is its dysfunctional form (e.g. Pondy, 1967), and is associated with negative outcomes. These include the distortion and withholding of information to the detriment of others, hostility, and distrust during interactions (Thomas, 1990; Zillman, 1988), opportunistic behaviour (Barclay, 1991), information gate-keeping ( Jaworski and Kohli, 1993), the creation of obstacles to decision making (Ruekert and Walker, 1987a), lower cross-functional cooperation and coordination (Ruekert and Walker, 1987b), and lower quality marketing strategy planning and implementation (Menon et al., 1996). Dysfunctional conflict reduces team performance and member satisfaction because it produces tension and antagonism, distracting people from their task performance (De Dreu and Weingart, 2003). Here, we define dysfunctional conflict in the conventional sense: it is unhealthy, and associated with dysfunctional behaviours, dissatisfaction, and poor individual and/or group performance. In contrast, functional conflict involves consultative interactions and useful give and take which can have beneficial effects within the organisation. Where functional conflict exists within a relationship, people feel free to express their opinions, and

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challenge others’ ideas, beliefs, and assumptions (e.g. Baron, 1991; Cosier and Rose, 1977; Tjosvold, 1985). Functional conflict can therefore help reduce “groupthink”, where feelings of solidarity and loyalty to a decision-making group may override the imperative to evaluate all possible options (Filley, 1970). Here we define functional conflict as a constructive challenging of ideas, beliefs, and assumptions, and respect for others’ viewpoints even when parties disagree.

1122 Explanatory variables Interpersonal trust The importance of interpersonal trust in exchange relationships is well established, and trust is salient in both inter-firm relationships (e.g. Anderson and Narus, 1990; Morgan and Hunt, 1994), and intra-firm relationships (e.g. McAllister, 1995; Schwenk, 1990). Trust is particularly important in CFRs because it helps build informal cooperation, and coordinate social interaction. Trust can also reduce a manager’s need to monitor a peer’s behaviour, formalise procedures, or create specific contracts governing cross-functional relations (see Williams, 2001). Interpersonal trust can therefore influence peer managers’ behaviours, and task outcomes (McAllister, 1995). Importantly for our current study, interpersonal trust can also affect “psychosocial” outcomes, such as the level of interpersonal conflict in the CFR (cf. Porter and Lilly, 1996; Ruekert and Walker, 1987a). There are a range of views on the conceptualisation of interpersonal trust, though one common view is that it has two underlying dimensions – one cognitive, and the other affective (Johnson-George and Swap, 1982; Lewis and Weigert, 1985; McAllister, 1995). Cognition-based trust derives from one’s rational bases for trusting another person, for example previous occasions in which the trusted person has been competent, reliable, and dependable. In contrast, affect-based trust is typified by emotional bonds between individuals, in which one party is trusted because they exhibit genuine care and concern for the welfare of another person (Lewis and Weigert, 1985). These two forms of trust are important in CFRs because they are strongly associated with other important behavioural variables, such as organisational citizenship behaviour, needs-based monitoring, and interpersonal citizenship behaviour (McAllister, 1995). Psychological distance between the marketing manager and the sales manager We include psychological distance in our conceptual model because various theories predict that there may be fundamental differences in the perspectives, priorities and behaviours of personnel employed in different functional areas within the firm. Gupta et al. (1986) for example, identified “sociocultural differences” between managers as factors which are potentially detrimental to cross-functional integration. These differences stem from employees of different departments reading different literatures, belonging to different groups and associations, and maintaining a social distance. Fisher et al. (1997) extended this work by operationalising these differences in their measure of the construct “psychological distance” in the marketing/engineering CFR. Similarly, recent research (Rouzie`s et al., 2005) has argued that “relative functional identification” – the extent to which an employee feels more connected with their function – is likely to be an important personal characteristic which needs to be considered by firms seeking to integrate marketing and sales. Consistent with this, in

their study of RFI in marketing/engineering relationships Fisher et al. (1997) argue that personnel who are high in RFI tend to focus more on issues specific to their function, and align themselves more with departmental priorities than the interests of the firm. Importantly, managers high in RFI derive much of their sense of social identity and self-image from their membership of their functional group (see Tajfel, 1982). Such managers are therefore more likely to share common perspectives and characteristics with members of their “ingroup” (e.g. members of the Sales Department), than any “outgroup” (e.g. members of the Marketing Department). Using these theories and existing research as a guide, we believe that fundamental differences are likely to exist between marketing managers and sales managers. Furthermore, those differences may affect the ability of those managers to forge effective, trusting relationships, hence the inclusion of psychological distance in our conceptual model. And consistent with Fisher et al. (1997), we define psychological distance in terms of how similar managers were in the time they took to make a decision, their tolerance for risk, the extent to which they focus on technology or customers, differences in their decision-making styles, and whether they believed there was always a “right” answer. Marketing manager’s level of sales experience A key argument we advance regarding the marketing manager’s level of sales experience, concerns the role of the perceived similarity of peer managers in forging effective interpersonal relationships (see Byrne, 1971). The logic underlying our arguments is that the more similar two people are, the more likely they will be able to work together effectively. Managers from different departments often differ in their training and work experiences, and these differences may pose problems for forging effective CFRs (e.g. Shaw and Shaw, 1998; Weinrauch and Anderson, 1982). Evidence of the importance of training and career paths was provided by Parry and Song (1993), who found that a manager’s commercial experience outside of their core discipline was perceived to act as a facilitator to shared understanding between marketing and R&D managers. Importantly, this finding is consistent with Griffin and Hauser’s (1996) notion of “personnel movement” as a mechanism for inter-functional integration. In the context of marketing/sales relationships, Cespedes (1993) notes that despite their differences in training and work experience, marketing and sales personnel are still expected to work together effectively on joint projects. Furthermore, these differences can lead to a poor understanding of how the other manager operates, and to resentment on both sides of the dyad (Cespedes, 1993). On this basis we would therefore expect that a marketing manager with sales experience is likely to be perceived by a sales manager as similar to them. This in turn may improve the working relationship between these two managers, and lead to the emergence of trust in the marketing/sales dyad. We therefore include the marketing manager’s level of sales experience in our hypothesised model. Marketing manager’s level of formal education Although a good number of studies have specifically addressed the issue of the effects of training on CFRs (e.g. Lawrence and Lorsch, 1967; Maltz and Kohli, 2000), very few have focused explicitly on the effects of formal education. Accordingly, we have little

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direct research to draw from and appreciate that the level of formal education, a concept closely related to training, could have positive, negative, or no effects on trust in particular, and CFRs in general. Despite the uncertainty over the effects of formal education, our basic premise is that better educated marketing managers will be more likely to form trusting relationships with sales managers. Some indirect support for this stance is provided by Robbins (1974), who argued that managers with higher levels of education are more likely to have anti-conflict value systems, and seek to eliminate conflict in their areas of responsibility. Recent research by Dawes and Massey (2005) provides support for this contention because they found that when sales managers had more formal education, there was less dysfunctional conflict with their counterpart marketing managers. One might therefore expect better educated marketing managers to be more predisposed to forming trusting relationships with sales managers. Other indirect evidence exists to support these arguments regarding formal education, at least in the UK. Finniston’s (1980) report into the engineering profession, for example, concluded that during the course of their studies, engineers had been too technically focused, and argued that some level of management knowledge and training was essential for engineers. Furthermore, it was recommended that engineering degrees should include business studies as part of the syllabus. One result of this might be that engineers develop a deeper understanding of marketing issues, and lead to lower conflict (Shaw and Shaw, 1998), conditions which are conducive to the formation of interpersonal trust in a working relationship. In summary, we include the three variables discussed above – psychological distance, the marketing manager’s sales experience, and level of formal education – because there seems sufficient evidence to suggest that differences in these personal characteristics may present an obstacle to the emergence of trust in cross-functional relationships. Moreover, Mayer et al. (1995) noted that trust within firms was likely to become more important in the future, because of increases in workplace diversity, where people from very different backgrounds would need to work closely with each other. Under these conditions, workers are less able to rely on interpersonal similarity, common backgrounds and experiences to work effectively together (Jackson and Alvarez, 1992). Understanding the impact of these individual differences on the formation of interpersonal trust between departmental managers is therefore of significant managerial importance. Hypotheses development Effects of cognition-based trust and affect-based trust on perceived relationship effectiveness The effects of cognition-based trust and affect-based trust on the CFRs are not well understood. McAllister (1995, p. 32) for example noted that “existing research contains little on how trust affects performance outcomes”. However, he argues that trusting peers are likely to assess each other’s performance more favourably. Where someone is not able to depend on a peer manager, (i.e. there is low cognition-based trust), they are likely to monitor that manager more closely so as to avoid potential adverse consequences on their own work (e.g. Ouchi, 1979; Pennings and Woiceshyn, 1987). Further, where cognition-based trust is low, managers will tend to “buffer” themselves against the influence of unreliable peer managers through

various forms of defensive behaviour, for example requesting assistance well ahead of time, and drawing on multiple, redundant sources of assistance (Ashforth and Lee, 1990). Therefore, where a marketing manager has low cognition-based trust in the sales manager, they will perceive their CFR to be less effective. We therefore hypothesise:

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H1a. As the marketing manager’s cognition-based trust in the sales manager increases, the perceived effectiveness of their working relationship will increase.

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Similarly, we expect affect-based trust to be positively associated with perceived relationship effectiveness. Support for this comes from McAllister (1995), who argued that relationships in which there is affect-based trust resemble “communal relationships” (Clark et al., 1989), within which individuals have a greater propensity to track associates’ needs. Where affect-based trust is present, marketing managers are more likely to engage in “need based monitoring” (i.e. a sensitivity to the personal and work-related needs of peer managers), and greater interpersonal citizenship behaviour (e.g. behaviour with a strong affiliative content) such as providing increased levels of assistance. Managers would be unlikely to engage in such behaviour if they perceived their CFRs with a peer manager to be ineffective. On this basis, we hypothesise: H1b. As the marketing manager’s affect-based trust in the sales manager increases, the perceived effectiveness of their working relationship will increase. Effects of cognition-based trust and affect-based trust on interpersonal conflict There is little empirical work to guide our hypotheses regarding the effects of cognition- and affect-based trust on dysfunctional or functional conflict, and we are aware of no studies that have examined these specific relationships. However, the salience of trust in interdependence relationships (Smith and Barclay, 1999) suggests that these two forms of trust are likely to affect interpersonal conflict between the marketing manager and the sales manager. Other studies (e.g. Dirks, 1999) found that work groups with high levels of interpersonal trust were more motivated toward joint efforts, and higher performance. This suggests that high trust should be associated with low dysfunctional conflict. As noted above, where cognition-based trust is low, managers may engage in control-based monitoring, and defensive behaviour. Therefore if low trust is associated with such “buffering” activities (Ashforth and Lee, 1990), low cognition-based trust may also imply higher dysfunctional conflict. We argue this because managers are likely to resent having to expend extra effort to protect themselves, and minimise the effects of unreliable peer managers on their own work. Where cognition-based trust is low or absent, a CFR may continue, but become cognitively intolerable due to outcome uncertainties associated with that lack of trust. This in turn can lead to dysfunctional behaviours and conflict between these interdependent parties (Andaleeb, 1995). Further support is provided by Shaw and Shaw (1998), who found that distrust was frequently identified by engineers as a source of dysfunctional conflict between themselves and marketers. Similarly, a manager with confidence in the work-related competence of a peer manager will be more open to questions, challenges, or alternate points of view.

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Cognition-based trust is therefore likely to be positively associated with functional conflict, as the opinions of competent managers from other departments are more likely to be given credence than the opinions of less competent managers. Turning now to our hypotheses relating to affect-based trust, it seems reasonable to argue that where there is high affect-based trust, there will be lower dysfunctional conflict. We argue this because affect-based trust involves volitional, affiliative support provided to peer managers, and managers with this form of trust in a peer, actively look for opportunities to meet that peer’s work-related needs (McAllister, 1995). Therefore, higher affect-based trust is indicative of lower levels of dysfunctional conflict in the CFR. Also, given the nature of this volitional, affiliative assistance, and the presence of affect in the relationship, higher affect-based trust should provide conditions conducive to the development of functional conflict. We therefore hypothesise: H2a. As the marketing manager’s cognition-based trust in the sales manager increases, the level of dysfunctional conflict between the marketing and sales manager will decrease. H2b. As the marketing manager’s affect-based trust in the sales manager increases, the level of dysfunctional conflict between the marketing and sales manager will decrease. H3a. As the marketing manager’s cognition-based trust in the sales manager increases, the level of functional conflict between the marketing and sales manager will increase. H3b. As the marketing manager’s affect-based trust in the sales manager increases, the level of functional conflict between the marketing and sales manager will increase. Effect of cognition-based trust on affect-based trust Our hypothesised model specifies a link from cognition-based trust to affect-based trust on both theoretical and empirical grounds. Rempel et al. (1985) found that affect in close relationships needs to be founded upon an existing cognitive base. Therefore, some level of cognition-based trust may be required in a CFR before affect-based trust will emerge. As argued by McAllister (1995), a manager must first observe that their peers meet a baseline level of reliability and dependability before they will invest more heavily in a relationship to the point that affect-based trust develops. Moreover, McAllister’s (1995) hypothesis linking cognition-based trust positively with affect-based trust was strongly supported. As such, we predict: H4. As the marketing manager’s cognition-based trust in the sales manager increases, the level of affect-based trust in the sales manager will increase. Effects of psychological distance on cognition-based trust and affect-based trust As a general principle, similarity between relationship partners provides a sound basis for the development of trust. Studies of inter-firm relationships (e.g. Zucker, 1986) have found that trust can develop between firms when personnel in those firms are socially similar. Work on international business alliances (e.g. Gerlach, 1990) reinforces this

argument, as domestic alliance partners were found to trust each other more than international partners. A number of studies have examined the impact of sociological and psychological differences on CFRs. Early work by Douglas (1987) suggested that individual departments evolve into cultural “thought worlds” with different funds of knowledge and systems of meaning. Dougherty’s (1992) study of departmental thought worlds during new product development found that they inhibited the product development process. Given that persons from one functional unit are likely to be psychologically different from those in other units, high psychological distance is likely to reduce cognition-based trust, as one’s rational bases for trusting a peer are strongly driven by perceived similarity to the other party (e.g. Fisher et al., 1997; Gupta et al., 1986; Rempel et al., 1985). Similarly, Lorsch and Lawrence (1965) noted that marketing and R&D personnel are broadly different in their orientations and preferences; short versus long-term orientation; tolerance for ambiguity; and their level of bureaucratic orientation. As a result of these differences, members of one department may have difficulty understanding the goals, solutions, and trade-offs of the other department (Griffin and Hauser, 1996). This lack of understanding is therefore likely to lead to lower cognition-based trust in the marketing/sales CFR. This effect is likely to be similar, but even more pronounced for affect-based trust, as this form of trust is more difficult to establish than cognition-based trust (e.g. Johnson-George and Swap, 1982). Hence, where the perceived similarity of one manager to another manager is low (i.e. there is high psychological distance), there is less likelihood of affect-based trust emerging in that relationship. As such, we hypothesise: H5a. As the psychological distance between the marketing manager and sales manager increases, cognition-based trust will decrease. H5b. As the psychological distance between the marketing manager and sales manager increases, affect-based trust will decrease. Effects of the marketing manager’s sales experience on cognition-based and affect-based trust One approach to understand variations in interpersonal trust between peer managers is to examine the individual attributes of the trustee (Mayer et al., 1995). Early work identified one’s perceived expertise as an antecedent to perceived credibility (Hovland et al., 1953), and in order for trust to develop in a trustee, that trustee needs to be perceived to be competent in their specific area of expertise (Sitkin and Roth, 1993). This is important because as noted earlier, evidence of a peer manager’s task-related competence is a precondition for the emergence of cognition-based trust (e.g. McAllister, 1995; Rempel et al., 1985). Further, Zand (1972) established that trust is domain-specific, and a person may be considered trustworthy in one area of expertise, such as marketing, but not in another, for example sales. It therefore seems reasonable to assume that a marketing manager with sales experience is more likely to understand the conceptual and operational domains of the sales manager because of their vocational experience in the sales department. If this is the case, they will therefore be in a better position to assess the

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competence of that sales manager. These common work experiences and the greater understanding of the sales manager’s professional domain, should facilitate the building of cognition-based trust between the two managers. Accordingly, we put forward the following hypothesis: H6a. As the marketing manager’s sales experience increases, the level of the marketing manager’s cognition-based trust in the sales manager will increase. Other work has identified “shared values” as an antecedent to interpersonal trust (e.g. Hart et al., 1986). Given the differences between marketing managers and sales managers in their professional training, orientations, and the objectives of their respective work units, one might expect the value systems of each unit to be different. Where the marketing manager has significant sales experience however, one might expect them to have adopted or at least to understand the value systems of sales. It is possible that they may then carry over these values in their subsequent role as a marketing functionary. This is important because social exchange theory predicts that shared values are an important driver of interpersonal trust (e.g. Thibault and Kelley, 1959). Studies in the management literature also support this view (e.g. Hart et al., 1986), and that shared values create a propensity to trust (Mayer et al., 1995). Further evidence for this is provided in the relationship marketing literature by Morgan and Hunt (1994) who found that shared values lead to trust between buyers and sellers. We therefore argue that marketing managers with sales experience are likely to have similar values to their counterpart sales manager, and be more likely to perceived themselves as being similar to the sales manager. Evidence in the buyer-seller literature supports this argument, as Doney and Cannon (1997) found that the more socially similar salespeople were to the personnel of a buying firm, the greater the buying firm’s trust of that salesperson. They argue that this is the case because buyers will attribute benevolent intentions to socially similar salespeople. We therefore believe that where a marketing manager has prior sales experience, this may influence the level of affect-based trust between themselves and the sales manager, and therefore hypothesise: H6b. As the marketing manager’s sales experience increases, the level of the marketing manager’s affect-based trust in the sales manager will increase. Effects of the marketing manager’s formal education on cognition-based trust and affect-based trust In our review of the literature we could not locate any research that has explicitly examined the link between levels of formal education and interpersonal trust in organizational settings. Accordingly, the following hypotheses should be treated as speculative. However, we do believe there is some justification for linking these constructs in our model. Marketing managers with higher levels of formal education for example, are likely to be university-educated. In the course of their education marketing managers will almost certainly have studied management, marketing, and other related business subjects that emphasise cross-functional integration, trust, and teamwork with peer managers. In addition, the marketing managers in our study were middle to senior managers, and by virtue of their education and experience will be more likely to have

good relationship development skills, anti-conflict value systems, and may even be evaluated and rewarded for a lack of dysfunctional conflict in their areas of responsibility (Robbins, 1974). Better educated managers will therefore tend to have more incentive and greater interest in building trusting relationships with peer managers. Indirect support for this contention is provided in recent empirical research by Dawes and Massey (2005), who found that sales managers with higher formal education were less likely to have dysfunctional conflict with their counterpart marketing managers. One might therefore expect better educated marketing managers to be more predisposed to forming trusting relationships with sales managers. Further evidence albeit indirect, comes from a study of marketing manager/engineering manager working relationships. Shaw and Shaw (1998) found that differences in the education and training of these managers was the most frequently cited cause of conflict between those functional managers. Therefore, if differences in education and training can lead to negative affect, then similarities in education and training should be associated with positive affect (e.g. affect-based trust). On the basis of the above arguments, our final hypotheses are: H7a. As the marketing manager’s formal education increases, the level of the marketing manager’s cognition-based trust in the sales manager will increase. H7b. As the marketing manager’s formal education increases, the level of the marketing manager’s affect-based trust in the sales manager will increase. Method In order to provide a common general context for their responses, marketing managers were asked to focus on a specific, major cross-functional project in which both they and the sales manager, and staff from at least two other functional areas, were heavily involved during the previous 18 months. Most projects (55.7 per cent) related to new product development, while the remainder included: promotion and public relations (19.6 per cent), business development (10.3 per cent), internal review of strategy and structure (5.1 per cent), and miscellaneous projects (9.3 per cent). On average, the mean budget for the project was Aus$1.031 million. Moreover, the modal values for the number of functional units and number of people involved in the project were four and eight, respectively. Data collection Data were collected from firms in Australia using a pre-tested, self-administered, mailed questionnaire. The sampling frame was generated from a proprietary mailing list of firms and the criteria for inclusion were: . the firm should have an identified (named) marketing manager/senior marketing executive; and . there must also be a named sales manager/senior sales executive. Executives with dual responsibilities were excluded from the sample. The final sampling frame consisted of 501 firms. After a second-wave mailout, 113 questionnaires were returned but 12 were deemed unusable for this particular research topic. A stamped, self-addressed card was attached to each follow-up questionnaire to facilitate a reply from non-respondents as

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to why they did not participate. In total, cards were returned from 53 firms, yielding a net response rate of 25.2 per cent. Our final sample was diverse: goods producers accounted for 45 per cent of the responding organizations, service providers 12 per cent, and 44 per cent sold both goods and services. In terms of market type, 42 per cent were in business markets, 27 per cent were in consumer markets, and 31 per cent sold into both markets. The average firm size was 557 employees. The marketing managers had worked with their counterpart sales managers for an average of 3.5 years, suggesting they were knowledgeable about the issues covered in this research. Measurement Two single item measures were used – marketing manager’s sales experience, and marketing manager’s formal education – while the remaining six scales were reflective multi-item measures: (1) psychological distance; (2) cognition-based trust; (3) affect-based trust; (4) dysfunctional conflict; (5) functional conflict; and (6) perceived relationship effectiveness. However, with respect to the final measure – perceived relationship effectiveness – we decided to drop the second item from Ruekert and Walker’s (1987a) measure on the grounds that we thought that it lacked face validity. Principal components analysis was then used to establish that the reflective multi-item constructs were unidimensional. As our sample was relatively small (n ¼ 101), confirmatory factor analysis was not used due to the likelihood of non-convergence and improper solutions (Gerbing and Anderson, 1988). Instead, we used partial least squares (PLS) to estimate our measurement and structural models. Analysis of the PLS “inner” (measurement) models revealed that, with the exception of psychological distance and functional conflict, all the items used to capture the reflective constructs were adequate indicators of the latent variables. With respect to psychological distance, three items (1, 3, and 5) were dropped from the original measure because their low standardized factor loadings suggested that they did not account for a sufficient amount of variance in the underlying construct. And for the same reason, item 2 was dropped from our measure of functional conflict. In such cases, the items add very little to the explanatory power of the measurement model, and if not omitted from the analysis, could attenuate and therefore bias the estimates of the path coefficients in the structural model (Hulland, 1999). Accordingly, we deleted the low-loading items from these two measures in order to improve their construct validity. See Table I for the measurement properties of the retained items and Table II for the full set of items. Convergent validity was established in two ways. First, the t-values from the PLS were examined for each item, and all were statistically significant (Anderson and Gerbing, 1988). Second, the average variance extracted (AVE) for each construct

Indicatora

Standardized factor loadings

Composite reliability

Average variance extracted

Psychological distance

2 4 6

0.707 0.740 0.766

0.78

0.54

Cognition-based trust

1 2 3 4 5

0.910 0.904 0.805 0.711 0.897

0.93

0.72

Affect-based trust

1 2 3

0.947 0.964 0.968

0.97

0.92

Dysfunctional conflict

1 2 3 4

0.877 0.870 0.666 0.678

0.86

0.61

Functional conflict

1 3 4 5 6

0.861 0.717 0.683 0.750 0.763

0.87

0.57

Perceived relationship effectiveness

1 3 4 5

0.949 0.946 0.950 0.979

0.98

0.91

Construct

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Note: aThe indicator number refers to the item number as depicted in Table II

exceeded 0.50, suggesting that our items explain more variance in our latent variables than variance due to measurement error (Fornell and Larcker, 1981). It was particularly important that we establish discriminant validity between the two trust dimensions and the two conflict dimensions. Accordingly, we used two separate tests to establish this type of validity. In the first of these, we tested 15 pairs of constructs using Fornell and Larcker’s (1981) criterion that the AVE for each construct in a test pair be greater than the square of the correlation between those two constructs. By doing this, discriminant validity was established between the two trust dimensions, and the two conflict dimensions. However, the test involving functional conflict and perceived relationship effectiveness passed only marginally. The AVEs for functional conflict and perceived relationship effectiveness for example were 0.57 and 0.91, respectively, while the squared correlation was 0.56. Despite these two measures only marginally passing Fornell and Larcker’s (1981) test of discriminant validity, we believe that they have sufficient face validity and that we were justified in including them simultaneously in our structural model. The two constructs are clearly strongly associated and the problem lies with the relatively low AVE for functional conflict.

Table I. Assessment of measurement for the multi-item constructs

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Construct

Items

Psychological distance (R) (three items)

Fisher et al. (1997) Seven-point scale anchored by: (1) “completely disagree” and (7) “completely agree”. Respondents were asked: The SM and me are similar in terms of: (1) the time it takes to make a decisiona; (2) our tolerance of risk; (3) our belief that there is always a “right” answera; (4) our personal style of conflict resolution; (5) our understanding of customersa; (6) amount and type of information required before making decisions

Cognition-based trust (five items)

McAllister (1995) Seven-point scale anchored by (1) “completely disagree” and (7) “completely agree”. Respondents were asked: (1) whether most people trust and respect the SM; (2) whether the SM approaches his/her job with professionalism and dedication; (3) whether the MM doubts the SMs competence and preparation; (4) whether the MM can rely on the SM to not cause problems through careless work; and (5) whether other work associates consider the SM to be trustworthy

Affect-based trust (three items)

McAllister (1995) Seven-point scale anchored by (1) “completely disagree” and (7) “completely agree”. Respondents were asked: (1) ours is a relationship in which we both freely share our ideas, feelings and hopes; (2) I can talk openly to him/her about difficulties that I’m having at work, and know that he/she will want to listen; and (3) If I shared my problems with him/her, I know that s/he would respond constructively and with understanding

Dysfunctional conflict (four items)

Jaworski and Kohli Seven-point scale anchored by (1) “completely disagree” and (7) “completely (1993) agree”. Respondents were asked: (1) when the two of us got together in group meetings, tensions between the two of us frequently ran high; (2) during this project, I generally disliked having to work with him/her; (3) there were no disagreements between myself and the SM over the running of this project (R); and (4) throughout the project, there was little interpersonal conflict between myself and the SM (R) (continued)

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Table II. Final multi-item measures

Adapted from

Construct

Items

Adapted from

Menon et al. (1996) Functional conflict (six items) Seven-point scale anchored by (1) “completely disagree” and (7) “completely agree”. Respondents were asked: (1) during this project, there was consultative interaction and useful give-and-take; (2) disagreements between team members impaired discussions of issues (R); (3) there was constructive challenge of ideas, beliefs, and assumptions; (4) members were comfortable about raising dissenting viewpoints; (5) different opinions or views focused on issues rather than individuals; and (6) even people who disagreed respected each others’ viewpoints Perceived relationship effectiveness (four items)

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Seven-point scale anchored by (1) Ruekert and Walker “completely disagree” and (7) “completely (1987a, b) agree”. Respondents were asked: (1) throughout this project, I was very satisfied with our working relationship; (2) during this project, the SM fully carried out his/her responsibilities and commitments to mea; (3) I think the time and effort that I spent developing and maintaining this working relationship was very worthwhile; (4) during this project, the SM responded well to feedback and advice from myself; and (5) overall, our working relationship was very successful

Notes: aItem deleted; (R), reverse-scaled

However, in order to confirm this, we used a second test advocated by Chin (1998) using the loadings and cross-loadings of the measurement model items (indicators) on the constructs within the model. The test requires that no item should load higher on another construct than it does on the construct it intends to measure. Our tests reveal that all the items in the reflective multi-item measures meet this criterion; therefore discriminant validity is established between our model constructs. Last, reliability analysis revealed that the composite reliabilities of our multi-item measures ranged from 0.78 to 0.98, which strongly suggests that all measures were acceptable and that we could proceed to the model testing phase of our research. Analysis PLS was used to estimate our structural model for various reasons. First, our sample size is relatively small; second, we make no assumptions about multivariate normality; and third, our primary concern is prediction of our endogenous variables (see Chin, 1998; Diamantopoulos and Winklhofer, 2001). To test the mediating role of cognition- and affect-based trust, we followed Baron and Kenny’s (1986) procedures and estimated eight models using OLS regression. This

Table II.

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number of models was required because we had to separately test the mediating effects of cognition- and affect-based trust on each of the three outcome variables depicted in Figure 1. According to Baron and Kenny (1986), when the mediating variable(s) enter the model, the contribution of a previously significant variable should drop significantly for partial mediation and become insignificant for full mediation. Of the three personal characteristics, only psychological distance was significant in the two regressions (Models 1 and 2) where cognition and affect-based trust were used as the dependent variable and the three personal characteristics were the independent variables. For cognition-based trust and affect-based trust, the relevant statistics for psychological distance are, respectively, beta ¼ 0:50, t-value ¼ 5:43, and p , 0:00, and beta ¼ 0:49, t-value ¼ 5:50, and p , 0:00. Similarly, psychological distance was the only significant variable when each of the three outcome variables was regressed (Models 3, 5, and 7) on the three person personal characteristics (e.g. for dysfunctional conflict, the relevant statistics for psychological distance are: beta ¼ 20:32, t-value ¼ 23:12, and p , 0:00). Importantly however, in all three cases where the outcome variable was regressed on the three personal characteristics and the two trust dimensions (Models 4, 6, and 8), psychological distance became insignificant. Specifically, the statistics for psychological in these three models are: . dysfunctional conflict – beta ¼ 20:06, t-value ¼ 20:57, and p ¼ 0:57; . functional conflict – beta ¼ 0:10, t-value ¼ 1:14, and p ¼ 0:26; . perceived relationship effectiveness – beta ¼ 0:10, t-value ¼ 1:30, and p ¼ 0:20. In sum, the above findings suggest that cognition-based trust and affect-based trust both fully mediate the effects of psychological distance on the three outcome variables. The results regarding the other two personal characteristics, however, do not support the view that the two trust dimensions mediate their effects because neither variable was found to be significantly related to cognition-based trust or affect-based trust. Results Descriptive findings As shown in Table III, the descriptive statistics reveal that, on average, our responding marketing managers enjoy a good relationship with their counterpart sales managers. Specifically, the level of dysfunctional conflict is low, mean ¼ 2:77 out of 7, where low numbers indicate low dysfunctional conflict. The standard deviation, however, reveals that there is some variation in the level of conflict (SD ¼ 1:46). This result is consistent with Dawes and Massey (2005) who used sales managers to report the level of dysfunctional conflict between themselves and the marketing manager, reporting a mean of 2.51 out of 7 (SD ¼ 1:29). The low level of dysfunctional conflict we observe in this current study therefore contrasts with the moderately high levels of conflict observed by Maltz and Kohli (2000) between marketing and R&D, manufacturing, and finance. In addition, we find fairly high levels of functional conflict (mean ¼ 5:39, SD ¼ 1:06), and perceived relationship effectiveness (mean ¼ 5:12, SD ¼ 1:70). Our findings regarding the focal construct interpersonal trust are also consistent with the results reported above for interpersonal conflict and relationship effectiveness. Specifically, cognition-based trust was high (mean ¼ 5:35, SD ¼ 1:36), as was

a

Marketing manager’s level of sales experience Marketing manager’s formal educationb Psychological distance Cognition-based trust Affect-based trust Dysfunctional conflict Functional conflict Perceived relationship effectiveness

a

4.53 4.15 3.96 5.35 5.12 2.77 5.39 5.12

Scale mean 2.19 0.89 1.23 1.36 1.75 1.46 1.06 1.70

SD 0.09 20.18 0.07 0.22 * 20.11 0.19 0.22 *

1

0.23 * 20.17 20.17 0.08 20.24 * 20.15

2

2 0.51 * * 2 0.51 * * 0.34 * * 2 0.45 * * 2 0.53 * *

3

0.76 * * 20.50 * * 0.69 * * 0.72 * *

4

b

20.47 * * 0.70 * * 0.78 * *

5

7

0.75 * *

6

2 0.52 * * 2 0.64 * *

–

8

Notes: Construct is a single item-measure and therefore the square root of the average variance extracted is not calculated; construct is measured on a five-point scale; *significant at the 0.05 level; * *significant at the 0.01 level (two-tailed tests)

1. 2. 3. 4. 5. 6. 7. 8.

Variable

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Table III. Means, standard deviations and correlations

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affect-based trust (mean ¼ 5:12, SD ¼ 1:75). But as can be seen from the relatively high standard deviations, there is quite a lot of variation in both forms of trust. Overall, these findings suggest that the conventional wisdom of the problematic relationship between marketing and sales, as indicated in Dewsnap and Jobber’s (2000, 2002) literature reviews, may no longer accurately reflect the current situation.

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Hypothesis testing In order to establish the stability and significance of our parameter estimates, we computed the t-values using 500 bootstrap samples. As shown in Table IV, nine of the 13 hypotheses were supported. The R 2 for perceived relationship effectiveness is 0.640, suggesting that our model explains 64 per cent of the variance in this endogenous variable. Similarly, the R 2 for functional conflict was high (0.551), though the result for dysfunctional conflict was lower (0.301). The R 2 for affect-based trust was 0.627, while for cognition-based trust it was 0.277. Together these results suggest that the model has good explanatory power, and that interpersonal trust between marketing managers and sales managers has a significant impact on both forms of interpersonal conflict, and relationship effectiveness. As predicted for both H1a and H1b, cognition-based trust (beta ¼ 0:280; p # 0:001), and affect-based trust (beta ¼ 0:564; p # 0:001) have strong positive effects on perceived relationship effectiveness, although affect-based trust has approximately twice the impact as cognition-based trust. In addition, both cognition(H2a) and affect-based trust (H2b) negatively influenced dysfunctional conflict (beta ¼ 20:289; p # 0:05, and beta ¼ 20:294; p # 0:05). As predicted for H3a and H3b, both forms of trust have strong positive effects on functional conflict, cognition-based trust (beta ¼ 0:374; p # 0:001), and affect-based trust (beta ¼ 0:415; p # 0:001). In addition, cognition-based trust (H4) strongly influenced affect-based

Hypothesis Linkages in the model H1a H1b H2a H2b H3a H3b H4 H5a H5b H6a H6b H7a H7b Table IV. Results of the model testing using PLS

Cognition-based trust ! perceived relationship effectiveness Affect-based trust ! perceived relationship effectiveness Cognition-based trust ! dysfunctional conflict Affect-based trust ! dysfunctional conflict Cognition-based trust ! functional conflict Affect-based trust ! functional conflict Cognition-based trust ! affect-based trust Psychological distance ! cognition-based trust Psychological distance ! affect-based trust MM’s sales experience ! cognition-based trust MM’s sales experience ! affect-based trust MMs’ formal education ! cognition-based trust MM’s formal education ! affect-based trust

Hypothesis sign Beta

t-statistic

þ 0.280

2.578 * *

þ 2 2 þ þ þ 2 2 þ þ þ þ

0.564 20.289 20.294 0.374 0.415 0.700 20.525 20.122 20.079 0.114 20.055 20.015

5.783 * * * 2 1.785 * 2 1.730 * 3.225 * * * 4.012 * * * 10.493 * * * 2 7.244 * * * 1.515 2 0.908 2.096 * 2 0.637 2 0.256

Notes: *p # 0.05; * *p # 0.01; * * *p # 0.001; (one-tailed tests). R 2: perceived relationship effectiveness ¼ 0:640, functional conflict ¼ 0:551, dysfunctional conflict ¼ 0:301, affect-based trust ¼ 0:627, cognition-based trust ¼ 0:277

trust (beta ¼ 0:700; p # 0:001). Our findings also support our hypotheses (H5a and H5b) linking psychological distance to trust. Psychological distance had the expected negative relationship with cognition-based trust (beta ¼ 20:525; p # 0:001), and affect-based trust (beta ¼ 20:122; p # 0:10), though the latter beta only approached statistical significance. Only one of our hypotheses (H6b) regarding the marketing manager’s sales experience was supported, i.e. the expected positive relationship with affect-based trust (beta ¼ 0:114; p # 0:05). We found no link between the marketing manager’s sales experience and cognition-based trust (H6a), nor any link between the marketing manager’s formal education and either form of trust (H7a and H7b). Discussion Theoretical implications The purpose of our research was to test a model using two trust dimensions to predict the levels of dysfunctional conflict, functional conflict, and perceived relationship effectiveness in the marketing/sales CFR. Overall, the model was very successful in predicting perceived relationship effectiveness and functional conflict, but was only moderately successful in predicting dysfunctional conflict. Importantly, our analysis reveals that the two trust dimensions have very good explanatory power, and all seven hypotheses relating to the two trust constructs were supported. Affect-based trust had the strongest effect on perceived relationship effectiveness, supporting the view that it is a qualitatively more “special” form of trust than cognition-based trust (e.g. Johnson-George and Swap, 1982). Affect-based trust, and the associated volitional needs-based monitoring of peers, and affiliative citizenship behaviour provide conditions under which high levels of effectiveness can be achieved. Having said this, cognition-based trust also had a strong, but somewhat weaker influence on perceived relationship effectiveness. This finding is consistent with the conceptualisation of both cognition-based trust and perceived relationship effectiveness. Cognition-based trust involves work-related competence and reliability, and perceived relationship effectiveness represents the extent to which the peer managers work effectively together. Our results therefore confirm the importance of cognition-based trust in building effective working relationships. On a related issue, our findings also strongly support the argument that managers need to demonstrate their work-related competence before affect is likely to emerge in the CFR. Our results also confirm that both cognition- and affect-based trust have strong negative effects on dysfunctional conflict, and strong positive effects on functional conflict. Cognition-based trust probably mitigates the effects of dysfunctional conflict because when it is present, interdependent managers perceive their counterparts in other departments to be competent and reliable. Where peer managers are competent, there will be fewer difficulties between those managers on joint projects, and fewer occasions on which task-related conflict will occur. Similarly, where there is affect-based trust in a CFR, managers are more likely to engage in affiliative behaviours (e.g. being sensitive to a peer manager’s personal and work-related needs) and provide higher levels of assistance (McAllister, 1995). Our results therefore suggest that where affect-based trust exists, managers will be less likely to engage in harmful forms of behaviour, such as overt dysfunctional conflict.

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The positive effects of these two forms of trust on functional conflict are also consistent with this view. The work related reliability associated with cognition-based trust, and the genuine care and concern for the peer manager typified by affect-based trust therefore appear to allow peer managers the confidence that they can question and challenge the other’s beliefs and assumptions, without such challenges being met with defensive behaviour, aggression, and dysfunctional conflict. Our results therefore reveal that these two dimensions of interpersonal trust are an important means through which managers can accrue the benefits of open, honest exchange of ideas, and consultation, and avoid the creativity stifling effects of groupthink in their joint decision making. Overall our findings support the view that interpersonal trust represents a powerful social and organisational force within firms. Turning now to the effects of psychological distance, our results suggest that psychologically dissimilar peer managers are less likely to be able to form trusting relationships. The effect of this dissimilarity is particularly strong for cognition-based trust, as the beta linking psychological distance to cognition-based trust is the third strongest effect in our model. Our results therefore add weight to the argument that peer managers who are similar to each other, are more likely to form trusting relationships (e.g. Byrne, 1971; Fisher et al., 1997; Gupta et al., 1986; Rempel et al., 1985). Our findings regarding the effect of psychological distance on cognition-based trust are particularly important because while cognition-based trust is easier to establish than affect-based trust ( Johnson-George and Swap, 1982), affect-based trust generally needs to be founded on a cognitive base. Further, of the two forms of trust, affect-based trust is the more potent in the CFR. Therefore where the psychological distance between two managers is high, this will tend to be associated with low, or even absent cognition-based trust, and therefore no strong foundation will exist for the emergence of affect-based trust. Our findings regarding the level of the marketing manager’s sales experience on trust are mixed, with only one of the two results statistically significant, and in the hypothesized direction (i.e. H6b, linking the marketing manager’s level of sales experience to affect-based trust). This result suggests that a marketing manager with sales experience is more likely to develop affect-based trust in their counterpart sales manager, than a marketing manager lacking this experience. Again, this effect may be due to the greater perceived similarity of the two managers, as both have similar functional backgrounds. Next we turn to the effects of the marketing manager’s formal education on interpersonal trust. Neither result was supported in our analysis, suggesting that greater formal education relative to a peer manager does not impact on trust development in CFRs. Although we are confident in the validity of our findings, we fully accept that the investigation of trust in organizations is a complex issue and our study is therefore subject to several cautions. For example, and in violation of the self-interest model of rational economic behaviour (Williamson, 1996), we found high levels of trust in a relationship which, at least anecdotally is supposed to be fraught and conflict-ridden. These unexpectedly high levels of trust may be explained in part by Fichman’s (2003) observation that people are generally predisposed towards fairness and reciprocity, and this may underpin a general tendency of people to trust each other. Also, people are cognitively adapted to deal with the risks of cheating and exploitation in social

contracts. For example, people with higher propensities to trust – and who trust people more regularly – are more likely to have greater skill to protect themselves in risky situations than “low trusters” who take fewer risks. Similarly, Yamagishi (2001) suggests that high trusters will tend to engage in more interactions (and therefore expose themselves to greater risk), but are likely to have greater social intelligence to detect potential exploitation by others. In other words, this variation in people’s disposition to trust is associated with the degree of social intelligence required to detect risk in social interactions. In our research, we studied dyadic relationships between middle to senior managers, who are likely to be highly experienced in the web of complex interactions that constitute cross-functional relationships. In these circumstances, one might expect them to possess higher levels of the social intelligence required to minimise the risks inherent in trusting a peer manager. One consequence of this might be (and consistent with our results) that there is a fairly high baseline level of trust between marketing managers and sales managers. Also, high trusters will tend to react strongly toward cheating in social contracts, and failure to reciprocate (Fichman, 2003). Again, peer managers knowing that there is likely to be a negative sanction applied to them if they behave opportunistically will be less likely to violate that social contract. Overall, the various factors discussed above may provide some explanation for the relatively high levels of trust observed between the marketing managers and sales managers in our study. The final theoretical implication relates to the wider applicability of our theoretical model. While our study context was the marketing/sales CFR, we believe that the model may apply equally to other marketing CFRs, and to CFRs not involving marketing personnel. We believe that the conceptual framework we employed examine issues that are fundamental to all CFRs. Managerial implications Our results have implications for senior managers of firms who wish to improve CFRs between marketing managers and sales managers. Our main finding is that interpersonal trust is a powerful determinant of effective CFRs, with strong effects on perceived relationship effectiveness, functional conflict, and dysfunctional conflict. Firms should therefore consider employing strategies to increase trust between functional managers, as it improves overall performance, provides an environment in which creative decision-making can occur via functional conflict, and reduces the distracting and damaging behaviours associated with dysfunctional conflict. Another insight is that perceived similarity appears to be an important determinant of effective CFRs, and consideration could be given during recruitment into marketing or sales roles to consider more favourably applicants who have had vocational experience in the other’s professional domain. It may also be wise for senior managers to implement in-house programmes to reduce the psychological distance between the two functional managers. Requiring each manager to spend a certain percentage of their time working with their counterpart manager could improve flows of information and expertise between them. One suggestion is that the marketing manager could spend a specified amount of time in the field with the sales manager (Carroad and Carroad, 1982; Roberts, 1987).

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Limitations and directions for future research A major limitation is our reliance on cross-sectional data to draw inferences about CFRs which develop and are enacted over time. Future research could utilize a longitudinal research design to investigate these phenomena. Another limitation relates to our data consisting of self-reports from marketing managers. Ideally, data should be collected from both members of the dyad, and future research should therefore examine this CFR using data obtained from marketing managers and sales managers from the same firms. The measurement properties of functional conflict and psychological distance is another limitation, as the AVE for psychological distance was only 0.54, whereas for functional conflict it was only 0.57. While functional conflict is widely discussed in the management literature, and in some marketing literature, measures of this important construct are rare. To the best of our knowledge, the measures we used to capture this construct have been used only once in a previous academic study (Menon et al., 1996), and have therefore not had the benefit of repeated testing and refinement. Similarly, the “psychological distance” construct has not been widely used or tested in academic studies. Future research could therefore improve on our analysis by incorporating better measures of this construct. Another suggestion for future research relates to our choice of the antecedents to trust. We selected three personal characteristics which were based on Dawes and Massey’s (2005) study of the marketing/sales CFR. However, future research on the marketing/sales CFR could draw on the wider literature on intra-organizational relationships. For example, such research could follow the suggestions of Gill et al. (2005) and examine the usefulness of constructs such as propensity to trust, and intentions to trust, as antecedents of cognition and affect-based trust. Moreover, it would be interesting to examine whether demographic characteristics (e.g. age, gender) affect the two forms of interpersonal trust. Such research would then build on the work of Gilbert and Tang (1998), who investigated the effects of various demographic characteristics on organizational trust. Finally, our sample consists of just 101 marketing managers and the response rate was only 25.2 per cent. Although these sampling characteristics compare favourably with other studies, future researchers should aim to obtain a larger sample size of marketing managers, plus a higher response rate, in order to have greater confidence in the generalizability of the research findings. References Amason, A.C. (1996), “Distinguishing the effects of functional and dysfunctional conflict on strategic decision making: resolving a paradox for top management teams”, Academy of Management Journal, Vol. 39 No. 2, pp. 123-48. Andaleeb, S.S. (1995), “Dependence relations and the moderating role of trust: implications for behavioral intentions in marketing channels”, International Journal of Research in Marketing, Vol. 12, pp. 157-72. Anderson, J.C. and Gerbing, D.A. (1988), “Structural equation modeling in practice: a review and recommended two-step approach”, Psychological Bulletin, Vol. 103 No. 3, pp. 411-23. Anderson, J.C. and Narus, J.A. (1990), “A model of distributor firm and manufacturer firm working partnerships”, Journal of Marketing, Vol. 54, January, pp. 42-58.

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Interpersonal trust between marketing and R&D during new product development projects

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Graham R. Massey

Received November 2005 Revised November 2006 Accepted March 2007

School of Marketing, University of Technology, Sydney, Australia, and

Elias Kyriazis School of Management and Marketing, University of Wollongong, Wollongong, USA Abstract

European Journal of Marketing Vol. 41 No. 9/10, 2007 pp. 1146-1172 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560710773381

Purpose – The primary objective of this research is to test a model examining interpersonal trust between marketing managers and R&D managers during new product development projects. Design/methodology/approach – In this study interpersonal trust as a bi-dimensional construct with cognitive and affective components is conceptualised. The authors’ integrative structural model specifies Weber’s structural/bureaucratic dimensions – formalisation and centralisation to predict three communication dimensions, communication frequency, quality, and bi-directionality. In turn these communication dimensions are used to predict cognition-based trust, and affect-based trust. In addition, the paper models the direct effects of the three communication dimensions on a dependent variable – perceived relationship effectiveness. The hypothesised model consists of 16 hypotheses, seven of which relate to the two focal interpersonal trust constructs. The measures were tested and a structural model estimated by using PLS. Data were provided by 184 R&D managers in Australia, reporting on their working relationship with a counterpart marketing manager during a recent product development project. Findings – The hypothesized model has high explanatory power and it was found that both trust dimensions strongly influenced the effectiveness of marketing/R&D relationships during new product development, with cognition-based trust having the strongest impact. The results also reveal which forms of communication help to build interpersonal trust. The most powerful effect was from communication quality to cognition-based trust. The next strongest effects were from bi-directional communication, which was a strong predictor of affect-based trust, and a somewhat weaker predictor of cognition-based trust. Interestingly, the direct effects of our three communication behaviours on relationship effectiveness were modest, suggesting that their relationship building effects are largely indirect. Last, it is revealed that bureaucratic means of control on product development projects have mixed effects. As expected, centralisation reduces cross-functional communication. In contrast, formalisation has a positive effect during product development, as it stimulates both the frequency and bi-directionality of communication between marketing managers and R&D managers on these projects. Originality/value – This is the first study to treat interpersonal trust as the focal construct in marketing/R&D relationships during new product development. Moreover, it is the only study of marketing/R&D relationships to conceptualise, measure, and model two underlying dimensions of interpersonal trust (cognition-based trust, and affect-based trust). Our study also integrates aspects of Weber’s theory of bureaucracy, with interaction theory, and demonstrates the strong links between these theoretical frameworks. Keywords Trust, Marketing, Research and development, Product development, Australia Paper type Research paper

Introduction Since Ruekert and Walker’s (1987) landmark study, marketing’s cross-functional relationships have become an important focus of academic research. Evidence of this can be seen in the large and growing literature examining marketing relationships, and marketing’s integration with other departments (e.g. Dawes and Massey, 2005, 2006; Fisher et al., 1997; Workman et al., 1998). The topic is theoretically and managerially important because increasingly, today’s flatter organisations require personnel to secure cooperation from individuals in other departments over whom they have no hierarchical control (Williams, 2001). Similarly, Webster (1997) suggests that an ability to manage cross-functional relationships will be an important skill for marketing managers in the future. Cross-functional relationships are vital during new product development (NPD) because NPD involves converting abstract ideas into tangible products. NPD requires interdependent specialists to provide or exchange resources such as information, expertise, and money (Lawrence and Lorsch, 1967; Olson et al., 1995), and cross-functional relationships facilitate these exchanges. The focus of this study is interpersonal trust in cross-functional relationships between marketing and R&D during NPD. We focus on this particular managerial dyad because it is well established that these two managers are among the most important decision makers during NPD projects (e.g. Wind, 1981, 1982). The extent to which these two managers trust each other is important because there is strong evidence that the more effectively marketing and R&D work together during NPD, the greater the likelihood of developing a successful new product (Maltz et al., 2001; Shaw and Shaw, 1998; Souder, 1981, 1988). Improving success rates of NPD projects is important for firms because new products have major strategic implications, e.g. for portfolio management, medium to long-term cash flows, and even the long-term survival of the firm (Cooper, 1996; Crawford and DiBenedetto, 2003). Empirical evidence suggests, however, that marketing/R&D relationships during NPD are often problematic (Shaw and Shaw, 1998). Therefore, improving these relationships is a critical managerial challenge. In this article we focus on the role of interpersonal trust in improving marketing manager/R&D manager relationships during NPD. A key argument we advance here is that the very nature of NPD projects (e.g. group problem-solving under conditions of high uncertainty, non-programmable problems) pose particular coordination challenges. We believe that these difficulties can be mitigated when interpersonal trust exists between NPD team members. We argue this because complex tasks create behavioural interdependence (Pfeffer and Salancik, 1978), and heighten the need for coordinating activities (Jones et al., 1997), and trust is known to act as an informal coordination mechanism (Jones and George, 1998). As Rousseau et al. (1998) note, in increasingly fluid and decentralised work settings such as NPD projects, trust can help workers to self-organise, and lead to trust-related behaviours such as cooperation. Importantly, because of the complexity of NPD projects, the direct effectiveness of formal/bureaucratic means of coordination is likely to be low. In arguing this we do not suggest that formal mechanisms will be ineffective during NPD; rather, they have a specific, but indirect role to play in fostering effective relationships. Our paper is structured as follows. First we outline the theoretical foundations of this research. We then present our conceptual framework, define the key constructs, and justify their inclusion in our model. Next we present our structural model and develop our hypotheses. We then describe our research methods, and report the results

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of our empirical tests. We conclude by discussing the implications of our research, its limitations, and possible topics for future research. Theoretical foundations We draw on two theoretical foundations to develop our model. The first is Weber’s (1924) theory of bureaucracy, from which we draw our two structural variables – formalisation and centralisation. We include these because both the management and marketing literature identify them as important aspects of internal coordination (e.g. Ayers et al., 1997; Rajagopalan et al., 1993), and they are therefore both likely to influence coordination and effectiveness in marketing/R&D relationships. We also draw on the interaction approach, which is used in many important studies of marketing’s relationships (e.g. Moenaert et al., 1994; Ruekert and Walker, 1987). The interaction approach focuses on how factors such as communication and trust predict satisfaction, performance, and relationship continuity in various contexts, forexample buyer-seller and channel relationships (see Anderson and Narus, 1990; Morgan and Hunt, 1994), and cross-functional relationships (e.g. Ruekert and Walker, 1987). Our choice of these theoretical frameworks allows us to examine various dimensions of marketing/R&D relationships (e.g. interpersonal trust; communication behaviours), and levels of analysis (e.g. structural versus individual-level). Our use of Weber (1924) allows us to investigate how formalisation and centralisation affect marketing/R&D relationships. However because these structural/bureaucratic variables lack action-level analysis, i.e. at the level of the human actors (Pennings, 1992), we also examine a number of communication variables drawn from the interaction approach. These include communication frequency, bi-directionality, and quality, and we include these because the current state of any relationship is the result of an ongoing series of interactions (e.g. Young and Wilkinson, 1997). Importantly, we examine two dimensions of interpersonal trust – cognition-based trust and affect-based trust – because of the salience of trust in working relationships (e.g. Williams, 2001), and because of an emerging consensus that interpersonal trust consists of two underlying dimensions, one cognitive and the other affective (e.g. McAllister, 1995). In this research we make five contributions. First, while earlier studies examine trust as an outcome of interdepartmental interactions (e.g. Jassawalla and Sashittal, 1998), interpersonal trust has not previously been used as the focal explanatory variable in marketing/R&D relationships. Second, ours is the first study to examine two forms of trust in NPD projects, and demonstrate their importance. Third, we reveal the differential effects of three communication dimensions – communication frequency, bi-directionality, and quality – in building interpersonal trust and promoting effective relationships during NPD projects. Fourth, we believe our model and findings are generalisable to other marketing relationships, and other situations in which there is cross-functional group decision-making (e.g. in organisational buying centres). Last, by integrating two separate but complementary theories, Weber’s (1924) theory of bureaucracy, and the interaction approach, we demonstrate the strong links between these two theoretical frameworks. Conceptual framework Our hypothesised model includes three sets of variables – structural, interaction, and trust – plus our outcome variable – perceived relationship effectiveness. Weber’s

(1924) bureaucratic dimensions are relevant because this theory suggests that different work situations require different combinations of these variables. Routine tasks such as normal production runs, for example, require only “mechanistic” structures, i.e. high formalisation and centralisation. In contrast, in situations of high task uncertainty, or where creativity and innovation are required (e.g. NPD projects), more “organic”, less formalised and centralised structures are appropriate (Burns and Stalker, 1961; Olson et al., 1995). Excessive bureaucracy during NPD may be dysfunctional, because the resulting ossification of behaviour can lead to the rejection of innovative ideas (Mintzberg, 1979). However, it is worth noting that some structure is likely to be necessary during NPD to help coordinate activities and information flows. Our model therefore specifies formalisation and centralisation to influence cross-functional communication during NPD. Further, both theory and empirical evidence suggest that communication within relationships influences trust development (see McAllister, 1995). We therefore link communication to trust in our model. Similarly, communication is believed to directly influence relationship effectiveness (e.g. Ruekert and Walker, 1987), and we therefore link communication directly to our dependent variable, perceived relationship effectiveness. Last, given the importance of trust to the effectiveness of working relationships, we also link our two trust dimensions to our dependent variable. Our hypothesised model is presented in Figure 1. Dependent variable: perceived relationship effectiveness Our dependent variable perceived relationship effectiveness is drawn from Van de Ven (1976), and relates to whether the R&D manager perceives their relationship with the marketing manager to be worthwhile, equitable, productive and satisfying. Consistent with Ruekert and Walker (1987), we operationalise this construct at the interpersonal rather than the interdepartmental level. We feel justified using a subjective outcome measure because other studies have done so (e.g. Anderson and Narus, 1990; Smith and Barclay, 1997), and because there is good evidence that the effectiveness of cross-functional relationships is strongly associated with successful NPD outcomes (e.g. Souder, 1981, 1988). Explanatory variables Structural/bureaucratic dimensions NPD projects require specialists from different departments with distinct skills, resources, and capabilities, to work together effectively. A key managerial role, therefore, is to take an active part in encouraging integration, and directing marketing and R&D towards the common goals of NPD teams, by implementing appropriate structures (Ayers et al., 1997). Formalisation and centralisation are two means by which this coordination is achieved, and various studies have found that they affect cross-functional relationships on NPD projects (e.g. Olson et al., 1995; Song et al., 1996). Formalisation is defined as the emphasis placed on following rules and procedures when performing one’s job (Pugh et al., 1968). Its purpose is to coordinate the firm’s activities by reducing variability in behaviour, and ultimately to predict and control it (Bjo¨rk, 1975; Mintzberg, 1979). Formalisation reduces confusion because staff know what they are expected to do, therefore during NPD, formalisation can help coordinate effort, and facilitate productive exchanges (Thompson, 1967).

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Figure 1. Hypothesised model of the marketing/R&D CFR during NPD

Centralisation is the extent to which decisions are made at higher levels in a firm’s hierarchy (Aiken and Hage, 1968). McCann and Galbraith (1981) argue that a key issue facing top management is to trade-off control against greater adaptability from decentralisation. On NPD projects, management must therefore balance the need for formal mechanisms, without creating a burden from procedural overload (Moenaert et al., 1994). Excessive centralisation can reduce communication and resource sharing between functional specialists (Olson et al., 1995), and we believe it is therefore important to examine the role of centralisation during NPD projects. Communication dimensions Moenaert and Souder (1990a) view the NPD process as primarily informational, and consistent with this, in their comprehensive review of the marketing/R&D literature, Griffin and Hauser (1996) cite 19 studies supporting the view that information transfer is an antecedent to effective marketing/R&D relationships. Given this, it is not surprising that many formal NPD systems (e.g. Stage Gate; Concurrent Engineering; Quality Function Deployment) emphasise the importance of cross-functional communication. Several communication dimensions are known to affect working relationships, and we examine three of these: (1) communication frequency; (2) bi-directionality; and (3) quality. We include communication frequency because it is a key variable in many types of relationships, including cross-functional relationships (e.g. Ruekert and Walker, 1987). Communication frequency is defined as the intensity of information flow between managers via meetings, reports, and telephone conversations (Van de Ven and Ferry, 1980). Bi-directional communication is included because recent studies have established its importance in cross-functional relationships (e.g. Dawes and Massey, 2005; Fisher et al., 1997). Moreover, Wheelwright and Clark (1992) note that bi-directional communication is especially important during NPD because it facilitates problem solving between marketing and R&D. We define bi-directionality as the extent to which communication between managers is a two-way process (Fisher et al., 1997). Last, we include communication quality because various studies (e.g. Gupta et al., 1986; Gupta and Wilemon, 1988) have found that the quality of communication flowing from marketing to R&D during NPD influences the perceived competence of marketing managers. Communication quality may therefore influence the effectiveness of marketing/R&D relationships during NPD projects. Consistent with Moenaert et al. (1992), communication quality is defined as how credible, understandable, relevant, and useful the information provided by the marketing manager was for the R&D manager’s task completion. Interpersonal trust The importance of trust in behavioural research is reflected in the range of disciplines which examine this construct (e.g. economics, psychology, management, and marketing). Trust between interdependent actors helps coordinate actions, and improve effectiveness within, and between organisations (Pennings and Woiceshyn,

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1987; Seabright et al., 1992). The social exchange literature suggests that trusting behaviours signal interest in, and commitment to relationships (Blau, 1964), while the marketing channels literature identifies trust as an important contributor to effective buyer-seller relationships (e.g. Anderson and Weitz, 1989). Similarly, in the relationship marketing literature, Morgan and Hunt (1994) identify trust as a key variable mediating effective relational exchange. Trust is important in cross-functional relationships because managers are boundary spanners who need to develop horizontal ties within the organization (Gabarro, 1990; McAllister, 1995). Overall firm performance can be improved where there is interpersonal trust between managers, because trust can improve cross-functional cooperation, coordination, and organizational decision-making. Trust also facilitates informal cooperation and coordinated social interaction, and reduces the need to monitor others’ behaviour, formalise procedures, or create specific contracts (Williams, 2001). Importantly, McAllister (1995) found that peer managers who trust each other are more sensitive to each other’s personal and work-related needs. In particular, they are less likely to engage in “control-based monitoring”, i.e. trying to manage the inherent uncertainty when they cannot count on the reliability of the other manager. Interpersonal trust can also increase “organizational citizenship behavior”, for example providing assistance to others that is outside one’s work role, not directly rewarded, and which helps organizational functioning. Interpersonal trust also increases “need-based monitoring”, i.e. a sensitivity to and keeping track of colleagues’ needs (Clark et al., 1989). Trust can also increase “interpersonal citizenship behavior”, i.e. increased assistance, a desire to help peers meet personal objectives, and the tangible expression of care and concern (McAllister, 1995). Conversely, in low trust relationships managers may behave defensively to protect themselves against the effects of unreliable peers. This can involve requesting assistance well before it is actually required, drawing on multiple, redundant sources of assistance, “working around” and avoiding others, and making requests more formally than they would do ordinarily (Ashforth and Lee, 1990; McAllister, 1995). Interpersonal trust can therefore be invaluable to organisations in general, but especially to firms using cross-functional teams or other collaborative structures to coordinate work. Interpersonal trust has been conceptualised in various ways in the literature, for example, as credibility, in which the trusted person fulfils oral or written statements or promises (e.g. Ganesan, 1994). Another perspective is that trust involves benevolence – a general concern for other people, which transcends the personal profit motive (e.g. Rempel et al., 1985). The perspective which we adopt in this paper is that trust is composed of both of these underlying dimensions, one of which is cognition-based, and the other affective in nature (see McAllister, 1995). Cognition-based trust arises from previous occasions in which another person has been competent, reliable, and dependable on work related issues. In contrast, affect-based trust is an emotional form of trust, in which one party exhibits genuine care and concern for the welfare of another person. Importantly, recent empirical research has revealed that these two forms of trust are distinct (e.g. Ganesan and Hess, 1997), and have differing effects on working relationships (e.g. McAllister, 1995). We therefore examine these two underlying dimensions of interpersonal trust to better understand their roles in working relationships between marketing and R&D during NPD.

Hypotheses development Effects of interpersonal trust Trust is known to be important in many contexts, for example in selling partner relationships (Smith and Barclay, 1997), and between buyers and sellers (Morgan and Hunt, 1994). The effects of cognition- and affect-based trust on cross-functional relationships, however, are not well understood, though managers who trust each other are likely to assess each other’s performance more favourably (McAllister, 1995). Cognition-based trust Because cognition-based trust concerns an individual’s beliefs about peer reliability, competence, and dependability (McAllister, 1995), it should be associated positively with relationship effectiveness. Shaw and Shaw (1998) found that when marketing managers lacked credibility, marketing/engineering relationships tend to be poor. Similarly, Gupta and Wilemon’s (1990) study of high-technology firms found that 27 per cent of the R&D managers surveyed believed that marketing managers did not know enough about marketing to be effective. We therefore argue that R&D managers with high cognition-based trust in a marketing manager will perceive their relationship to be effective, and hypothesise: H1a. As cognition-based trust between the R&D manager and the marketing manager increases, perceived relationship effectiveness will increase. Both theory (e.g. Lewis and Weigert, 1985), and empirical evidence (e.g. McAllister, 1995) suggest that affect-based trust develops from an existing cognitive base. Once a peer manager is perceived to be competent, reliable, and dependable, affect-based trust is more likely to emerge (McAllister, 1995). In justifying this hypothesis we look to game theory for insights. Game theory predicts that where one party acts in a trusting manner there is a tendency for people to reciprocate this behaviour (Boyle and Bonacich, 1970; Solomon, 1960). This initial display of cooperation is seen as evidence of trustworthiness, and allows the relationship to continue to a point where initial liking (i.e. affect) between parties may occur (Dasgupta, 1988). Similarly, several trust theorists (e.g. Jones and George, 1998; Lewis and Weigert, 1985; Rousseau et al., 1998; Sheppard and Sherman, 1998) argue that evidence of reliability and dependability from previous interactions with the trustor give rise to positive expectations about the trustee’s intentions. Trust develops as the cognitive level of experience is reached when social actors no longer need or want further evidence, or rational reasons for their confidence in the objects of trust. Emotion then enters into the relationship because frequent, longer-term interaction leads to the formation of attachments based upon reciprocated interpersonal care and concern (Lewis and Weigert, 1985). This emotional response, which is rich in caring and benevolence is equivalent to McAllister’s (1995) affect based trust. Accordingly we hypothesise: H1b. As cognition-based trust between the R&D manager and the marketing manager increases, affect-based trust will increase. Affect-based trust Affect-based trust involves reciprocated interpersonal care and concern for another person (Pennings and Woiceshyn, 1987; Rempel et al., 1985), subjective feelings of security against being exploited, and the comfort and assurance that one’s interests are

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being served by another party (Mittal, 1996). Consistent with this, managers reporting high affect-based trust look for more opportunities to meet peers’ work-related needs, and engage in more productive interventions (McAllister, 1995). Therefore, an R&D manager with high affect-based trust in a marketing manager will be more likely to report that their relationship is effective. Accordingly we hypothesise: H1c. As affect-based trust between the R&D manager and the marketing manager increases, perceived relationship effectiveness will increase. Effects of managerial communication behaviours Studies of various relationships, whether buyer-seller (e.g. Anderson and Narus, 1990; Doney and Cannon, 1997), or cross-functional (e.g. Song et al., 2000; Souder, 1988) suggest that they are built in part, through effective communication. The nature and pattern of cross-functional communication is a key aspect of cross-functional coordination (e.g. Fisher et al., 1997; Ruekert and Walker, 1987), particularly during NPD (see Griffin and Hauser, 1996; Souder and Moenaert, 1992). Wheelwright and Clark (1992), for example, note that a key role of senior management is to communicate ideal patterns of involvement, interaction and collaboration during NPD. Communication frequency Bi-directional communication. When peer managers communicate frequently, that communication is likely to be reciprocated, creating a bi-directional communication flow. This is because norms of reciprocity are deeply ingrained in most social systems (Gouldner, 1960). Consistent with this, Wheelwright and Clark (1992) argue that frequent communication during NPD should therefore lead to higher “reciprocal” (i.e. bi-directional) communication. Also, frequent communication helps increase one’s understanding of a peer’s operational domain and information requirements (Souder, 1987). More frequent communication should therefore prompt greater bi-directional communication, to satisfy that manager’s information needs. We therefore hypothesise: H2a. Greater communication frequency between the R&D manager and the marketing manager will lead to greater bidirectional communication. Cognition-based trust Social exchange theory predicts that frequent interaction (of which communication is a key component) allows people to assess the competence and reliability of others (Blau, 1964). As noted previously, competence and reliability are important facets of cognition-based trust. Because communication frequency provides necessary information to assess a peer manager’s role competence, communication frequency should be positively associated with cognition-based trust. Support for this is provided by Becerra and Gupta (2003), who found a strong positive correlation between frequent communication and perceived trustworthiness of peer managers. We therefore hypothesise: H2b. Greater communication frequency between the R&D manager and the marketing manager will lead to greater cognition-based trust.

Perceived relationship effectiveness A key tenet of the interaction approach is that effective relationships are built on a foundation of frequent communication. This is because frequent communication is believed to promote mutual understanding, harmonious relationships, and improve joint decision-making (see Griffin and Hauser, 1996). Consistent with this, in their study of communication between marketing and engineering during NPD, Fisher et al. (1997) found a positive relationship between communication frequency and perceived relationship effectiveness. Also, Song et al. (1996) found that R&D employees identified a lack of communication as a major barrier to them building effective relationships with marketing. Infrequent communication might therefore indicate that the relationship is ineffective, and we therefore hypothesise: H2c. Greater communication frequency between the R&D manager and the marketing manager will lead to greater perceived relationship effectiveness, Effects of bi-directional communication Bidirectional communication involves the exchange of information to achieve mutual goals (Mohr et al., 1996) and should therefore be important during NPD projects. Souder (1987) argues, for example, that the sharing of project data and facts helps build creative synergy, by allowing parties to agree on the division of labour, define their roles, and determine which tasks each is best able to perform. Quality of communication No previous studies have examined the relationship between bi-directional communication and communication quality, although Dougherty (1992) suggests that interdepartmental feedback and elaboration can improve managers’ perceptions of others’ inputs. Also, Fisher et al. (1997) found that bi-directional communication between marketing and engineering managers during NPD correlated strongly with information use. Managers with a high propensity to use information provided are therefore likely to perceive that information to be of high quality. Bi-directional communication should therefore be positively associated with information quality, and we hypothesise: H3a. Greater bidirectional communication between the R&D manager and the marketing manager will lead to greater quality of communication. Cognition-based trust As with our previous hypothesis, no prior research has examined the link between bi-directional communication and cognition-based trust. However, drawing on relevant theory, and recent studies examining the effects of bi-directional communication in cross-functional relationships (e.g. Dawes and Massey, 2005; Fisher et al., 1997) we argue that bidirectional communication is likely to be an important factor during NPD. Bi-directional communication can help overcome one of the greatest barriers to effective working relationships between marketing and R&D, i.e. the “credibility” problem (Gupta and Wilemon, 1988; Shaw and Shaw, 1998). Moenaert and Souder (1990b) found that R&D managers struggle with jargon-filled marketing data, and one key mechanism for improving their understanding is via what Moenaert and Souder (1990b) refer to as “interactive communication”, which we interpret to be equivalent to “bi-directional communication”. We therefore argue that bi-directional communication

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and cognition-based trust will be positively related. Bi-directionality is a reciprocal form of communication, allowing managers to demonstrate the work-related reliability which is the basis of cognition-based trust. In addition, decision-making during complex tasks such as NPD requires effective information exchange between managers. Therefore, high bi-directional communication suggests that those managers have work-related confidence in each other (i.e. cognition-based trust). Thus, we predict: H3b. Greater bi-directional communication between the R&D manager and the marketing manager will lead to greater cognition-based trust. Affect-based trust In contrast to communication frequency, which may consist mostly of impersonal communication such as e-mails or memoranda, bi-directional communication is often more informal and personal (Huber and Daft, 1987). Social exchange theory (e.g. Blau, 1964) suggests that such informal or reciprocal communication is an effective way of assessing the intentions of a peer manager. Because interpersonal cues are generally harder to misconstrue in face-to-face interactions (Good, 1988) bi-directional communication may allow social aspects of relationships to emerge. Therefore, where bi-directional communication is high, peer managers are more likely to hold favourable beliefs about the other person, and have the other’s interests at heart. Thus, we predict: H3c. Greater bidirectional communication between the R&D manager and the marketing manager will lead to greater affect-based trust. Perceived relationship effectiveness Feedback is important because it provides communicators with opportunities to clarify their messages and reduce misunderstandings (Fisher, 1978), thereby improving cross-functional relations. Bi-directionality should therefore be positively associated with relationship effectiveness. Empirical support for this proposition was provided by Fisher et al.’s (1997) study of factors affecting communication between marketing and engineering. In this study they found a positive link between bi-directional communication and perceived relationship effectiveness, and we therefore predict: H3d. Greater bidirectional communication between the R&D manager and the marketing manager will lead to higher perceived relationship effectiveness. Quality of communication Because R&D require information from marketing to achieve their NPD goals, the higher the perceived quality of this information, the greater will be R&D’s work-related confidence in the marketing manager. Gupta and Wilemon (1988) found that when R&D perceived marketing’s information to be credible, understandable, relevant, and useful for task completion (i.e. high quality), the marketing manager was perceived to be more trustworthy, competent, and knowledgeable. Similarly, Jassawalla and Sashittal (1998) found that in firms reporting high levels of functional integration, marketing managers who provided high quality information were viewed as professional and competent. Also, Moenaert and Souder (1990b) found that when R&D managers believe the marketing manager is not competent, they screen out information from that manager. As cognition-based trust concerns work-related competence and

professionalism, both of which can be demonstrated via quality communication, we hypothesise: H4a. Greater quality of communication between the R&D manager and the marketing manager will lead to greater cognition-based trust. Perceived relationship effectiveness A number of scholars view marketing’s primary role during product development as acquiring and providing R&D with relevant information regarding user needs, competition, and resources (e.g. Gupta et al., 1985; Moenaert and Souder, 1990a). Because R&D depends on this information to achieve its goals, the quality of marketing’s communication is likely to affect their NPD performance. Therefore where marketing provide R&D with high-quality information, R&D managers can better achieve individual and joint goals (Gupta and Wilemon, 1988), and will perceive their relationship with marketing to be effective. We therefore hypothesise: H4b. Greater quality of communication between the R&D manager and the marketing manager will lead to higher perceived relationship effectiveness. Effects of the structural dimensions Formalisation and centralisation are important factors influencing cross-functional relationships during product development projects (Ayers et al., 1997; Song et al., 1996) and one of their main impacts is on communication flows between marketing and R&D (Moenaert et al., 1994). Effects of formalisation Formalisation during NPD projects establishes managers’ role expectations and expected information flows (Moenaert and Souder, 1990a). Rules and standard operating procedures often specify high levels of cross-functional communication. Consistent with this, Ruekert and Walker (1987) found that higher formalisation was associated with increased communication between marketing and R&D, manufacturing, and accounting. Similarly, Moenaert and Souder (1990b) found that formalisation increased both formal and informal communication between marketing and R&D personnel during NPD. We therefore hypothesise: H5a. Greater project formalisation will lead to greater communication frequency between the R&D manager and the marketing manager. In extending their previous research into cross-functional communication, Moenaert et al. (1994) found that formalisation was positively associated with communication flows from marketing to R&D, and also from R&D to marketing, i.e. bi-directional communication. Similarly, Song et al. (1996) found that formalisation had a positive effect on information exchange between marketing and R&D in the planning phase of NPD projects. Using these two studies as support, we hypothesise: H5b. Greater project formalisation will lead to greater bi-directional communication between the R&D manager and the marketing manager. Effects of centralisation The effects of centralisation on communication have been examined in several literatures. Hage et al.’s (1971) study of strategic decision-making, for example, found

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that decentralisation increased the frequency of unscheduled cross-functional interaction. Conversely, high levels of centralisation on projects can inhibit functional specialists from communicating directly (Olson et al., 1995), and negatively affect information sharing and cross-functional communication during NPD (e.g. Ayers et al., 1997; Gupta and Wilemon, 1988). On this basis we expect higher centralisation to be associated with lower communication frequency, and hypothesise: H6a. Greater project centralisation will lead to lower communication frequency between the R&D manager and the marketing manager. Moenaert et al.’s (1994) study of integration mechanisms and communication flows between marketing and R&D during NPD found that project centralisation is negatively associated with communication flows, i.e. lower bi-directionality. Similarly, Song et al. (1996) found that higher centralisation during NPD projects had a negative effect on level of information exchange between these functions in the planning phase of the project. We therefore hypothesise: H6b. Greater project centralisation will lead to lower bidirectional communication between the R&D manager and the marketing manager. Method Data collection Data were collected from R&D managers in Australian firms, acting as key informants on their working relationship with the marketing manager during a recent NPD project. The survey used a pre-tested, mailed, self-administered questionnaire. The criteria used to qualify respondents were: . the respondent’s firm needed to conduct NPD; . the firm needed an identifiable manager responsible for R&D; and . the firm needed an identifiable marketing manager or senior marketing executive. The sampling frame was generated from a commercial mailing list and screened to eliminate firms unlikely to be involved in NPD. The remaining firms were contacted by telephone, and those not involved in NPD were removed from the sampling frame. In total, 334 managers agreed to participate, and after two waves of follow up telephone calls we received 184 usable responses, a net response rate of 54 per cent. Sample characteristics The sample of 184 firms comprised mostly goods producers (96.2 per cent), while the remainder (3.8 per cent) were software producers. Consumer marketers accounted for 47.0 per cent, business-to-business marketers 23.5 per cent, and 29.5 per cent sold into both markets. Tests of non-response bias revealed that there were no statistically significant differences between the early and late respondents. Operational measures Two types of measures were used, formative multi-item, and reflective multi-item scales. Our single formative measure is communication frequency, which was assessed using ten items drawn from Fisher et al. (1997). Because peer managers can communicate in many ways (e.g. face-to-face, by telephone, by e-mail) we treated

communication frequency as an index measure, by asking respondents how frequently they and the marketing manager communicated via each of those methods. Our seven reflective multi-item measures were: (1) formalisation; (2) centralisation; (3) bi-directional communication; (4) quality of communication; (5) cognition-based trust; (6) affect-based trust; and (7) perceived relationship effectiveness. In selecting our measures of these constructs, we preferred those that were reflective in nature, because this would allow us to test them for dimensionality, reliability, and validity. In addition, we preferred measures which had themselves been tested and validated. Details for each scale can be found in the Appendix, Table AI. Measure refinement The reflective multi-item measures were tested using exploratory factor analysis and found to be uni-dimensional. In addition, we carefully examined the wording of our items, and on face validity grounds decided to drop items 2 and 4 from the bank of five items measuring our dependent variable (see the Appendix, Table AI for details). Following this, we used partial least squares to assess the measurement properties of the remaining items. Our first run of the model was conducted using all of the remaining items, and we examined the “outer” (measurement) model loadings. One item was deleted because of a low standardised loading, suggesting that it did not strongly reflect the associated latent variable (item 4 for bidirectional communication; see the Appendix, Table AI for details). Convergent validity was established in two ways. First, the t-statistics for each indicator were all statistically significant (Anderson and Gerbing, 1988), and second the average variance extracted (AVE) for each construct exceeded 0.50 (Fornell and Larcker, 1981). Discriminant validity was also established in two ways. First, the squared correlation for all pairs of constructs was less than the AVE for each individual construct (Fornell and Larcker, 1981). Second, we examined the pattern of loadings and cross-loadings of all items on all latent variables in our model. The criterion to establish discriminant validity is that no item should load more heavily on another construct than it does on the construct it is intended to measure (see Chin, 1998). All items passed this test, so discriminant validity was established between the constructs in our model. Reliability analysis reveals alpha coefficients for our measures of 0.79 or higher, and the composite reliabilities all exceeded 0.88 (see Table I), suggesting good internal consistency in our measures. Overall, the measurement properties of our scales are satisfactory, and suggest that it is appropriate to estimate and evaluate our structural model. Results Descriptive results As can be seen from Table I, the mean score for perceived relationship effectiveness is 5.18 (SD ¼ 1:36). Because the maximum score for this construct is 7, it seems that on

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Table I. Means, standard deviations, correlations, and internal consistencies of constructs 2.51 5.12 4.65 5.19 4.83 5.18

11 3 5 5 3 3

1.26 1.37 1.22 1.54 1.36

0.79 0.93 0.89 0.92 0.91

0.66 N/A

1.55 0.84 1.37 0.80

a

0.88 0.95 0.92 0.95 0.94

N/A

0.90 0.88

Composite reliability 0.71

Cent

0.26 * * 0.29 * * 0.31 * * 0.35 * * 0.41 * *

20.20 * * 20.18 * * 20.25 * * 20.13 20.23 * *

0.30 * * 20.06

0.76 20.05

Form

0.39 * * 0.35 * * 0.24 * * 0.29 * * 0.33 * *

N/A 0.71 0.75 * * 0.60 * * 0.62 * * 0.67 * *

Correlations of constructs Comm Comm freq Bi-dir qual

CBT

ABT

PRE

0.78 0.69 * * 0.70 0.56 * * 0.70 * * 0.87 0.70 * * 0.78 * * 0.72 * * 0.85 P P P Notes: Composite reliabilities are calculated using factor loadings and residual variances: ¼ ð lyi Þ2 =ð lyi Þ2 þ varð1i Þ, P 2 P 2 consistency P 2 2 a varð1i Þ ¼ 1 2 lyi . Diagnonal elements are the average variance extracted (AVE): AVE ¼ lyi = lyi þ varð1i Þ? varð1i Þ ¼ 1 2 lyi . Denotes a formative measure

4.02 2.69

3 3

Mean SD

Internal consistency

1160

Formalisation Centralisation Communication frequencya Bi-directional communication Communication quality Cognition-based trust Affect-based trust Perceived rel. effect.

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average, relationship effectiveness between the marketing managers and R&D managers is fairly high. The relatively high standard deviation suggests, however, that there is considerable variation in the quality of the relationships in this study. Our findings suggest that on average, there is a reasonable amount of interpersonal trust between these managers, cognition-based trust X ¼ 5:19 (SD ¼ 1:22), and affect-based trust X ¼ 4:83 (SD ¼ 1:54). Also, there is a fairly high level of collaborative communication because bidirectional communication is quite high, X ¼ 5:12 (SD ¼ 1:26). Communication quality, however, is slightly lower, X ¼ 4:65 (SD ¼ 1:37), while communication frequency is quite low, X ¼ 2:51 (SD ¼ 0:66). Last, the projects in our sample had only moderate levels of formalisation, X ¼ 4:02 (SD ¼ 1:55), and low levels of centralisation, X ¼ 2:69 (SD ¼ 1:37). Model estimation and testing results PLS Graph Version 3 (Chin, 2003) was used to estimate our structural model for a number of reasons. First, our sample size is relatively small (n ¼ 184); second, we make no assumptions about the normality of our variables; third, our model includes both formative and reflective measures; and last, our primary aim is to predict endogenous variables such as interpersonal trust (see Chin, 1998; Diamantopoulos and Winklhofer, 2001). Our parameter estimates and t-statistics were computed using 500 bootstrap samples. As shown in Table II, 13 of the 16 hypotheses were supported. The R 2 for perceived relationship effectiveness is 0.728, suggesting that our model explains 72.8 per cent of the variance in this endogenous variable. Similarly, R 2 for cognition-based trust ¼ 0:497, affect-based trust ¼ 0:553, communication quality ¼ 0:579, bi-directional communication ¼ 0:221, and communication frequency ¼ 0:132. Overall, these findings suggest that the dependent variable, and the focal variables of this study (cognition-and affect-based trust) are predicted well in our model. The results of the hypotheses testing are presented in Figure 2 and Table II, and only three of the 16 hypotheses were non significant. Six of the our seven hypotheses relating to interpersonal trust were supported, consistent with our arguments that interpersonal trust is one of the most important factors influencing marketing/R&D relationships during NPD projects. Specifically, both forms of trust greatly increase the effectiveness of the marketing/R&D relationship. Cognition-based trust ! perceived relationship effectiveness (b ¼ 0:399, p , 0:001), and affect-based trust ! perceived relationship effectiveness (b ¼ 0:252, p , 0:001). In addition, our results suggest that cognition-based trust has a strong positive effect on affect-based trust (b ¼ 0:511, p , 0:001). Turning now to the effects of communication behaviours on interpersonal trust, three of our four hypotheses were supported. The strongest effect observed was communication quality ! cognition-based trust (b ¼ 0:529, p , 0:001), followed by bi-directional communication ! affect-based trust (b ¼ 0:311, p , 0:001), and bi-directional communication ! cognition-based trust ( b ¼ 0:189, p , 0:05). However, no relationship was found between communication frequency and cognition-based trust (b ¼ 0:052, p . 0:05). Our results also reveal that bidirectional communication strongly affects the quality of communication exchanged between the two managers (b ¼ 0:761, p , 0:001), and that communication frequency can increase bidirectional communication in this relationship (b ¼ 0:362, p , 0:001). This suggests that various communication behaviours work in combination within NPD teams, often reinforcing each other.

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Table II. Marketing/R&D relationships: PLS structural modelling results

Linkages in the model

Hypothesis Hypothesis sign Standard b

t-value

CBT ! PRE CBT ! ABT ABT ! PRE Communication frequency ! bi-directionality Communication frequency ! CBT Communication frequency ! PRE Bi-directional communication ! quality communication Bi-directional communication ! CBT Bi-directional communication ! ABT Bi-directional communication ! PRE Quality communication ! CBT Quality communication ! PRE Formalisation ! communication frequency Formalisation ! bi-directionality Centralisation ! communication frequency Centralisation ! bi-directionality

H1a H1b H1c H2a H2b H2c

þ þ þ þ þ þ

0.399 0.511 0.252 0.362 0.052 0.096

6.399 * * * 8.254 * * * 3.629 * * * 4.291 * * * 0.827 2.168 *

H3a H3b H3c H3d H4a H4b H5a H5b H6a H6b

þ þ þ þ þ þ þ þ 2 2

0.761 0.189 0.311 0.099 0.529 0.175 0.337 0.138 20.119 20.142

26/107 * * * 1.952 4.571 * * * 1.421 6.241 * * * 2.459 * * 3.293 * * * 1.759 * 1.246 1.865 *

Model statistics R 2 for perceived relationship effective R 2 for cognition-based trust R 2 for bi-directional communications R 2 for affect-based trust R 2 for communication quality R 2 for communication frequency

0.726 0.497 0.221 0.553 0.579 0.132

Notes: *Significant at #0.05 level (one-tailed test); * *significant at # 0.01 level (one-tailed test); * * *significant at #0.001 level (one-tailed test)

Interestingly, the direct effects of the communication behaviours on perceived relationship effectiveness were relatively modest, as communication frequency had a small but statistically significant influence on relationship effectiveness (b ¼ 0:096, p , 0:05), as did communication quality, though the effect was somewhat stronger (b ¼ 0:175, p , 0:05). Bi-directional communication, however, had no significant influence on perceived relationship effectiveness (b ¼ 0:099, p . 0:05). Our results regarding Weber’s (1924) bureaucratic dimensions were mostly supported. Formalisation had a positive effect on both communication frequency (b ¼ 0:337, p , 0:001), and on bi-directional communication (b ¼ 0:138, p , 0:05). Last, centralisation had the expected negative effect on bidirectional communication (b ¼ 2 0:142, p , 0:05), but none on communication frequency (b ¼ 2 0:119, p . 0:05), though the sign was in the hypothesised direction. Discussion Theoretical implications In our conceptual model we integrate Weberian and interaction-based theories to examine the effects of structural, and individual-level variables in marketing/R&D relationships during NPD projects. As predicted, both of the focal constructs of this research, i.e. cognition- and affect-based trust, have a strong positive impact on our

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Figure 2. PLS structural model results

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dependent variable – perceived relationship effectiveness, with cognition-based trust having the stronger effect. R&D managers with cognition- and affect-based trust in their counterpart marketing manager are therefore more likely to perceive that their relationship is effective. Our findings therefore support the view that trust can help break down the barriers between the “functional silos” represented by separate departments (Dougherty, 1992), which reduce the ability of managers from different functional units to work together effectively. This is important because departments with conceptual and operational domains as dissimilar as marketing and R&D have a high potential to develop ineffective working relationships, and our findings corroborate theory suggesting that interpersonal trust is a key factor allowing these two functions to work together more effectively. Recall that cognition-based trust concerns work-related competence and reliability, and by extension, task accomplishment. Our results show clearly that the task related outcomes on NPD projects are likely to be substantial when cognition-based trust is present, as no other construct has a greater influence on the effectiveness of the marketing/R&D relationship during NPD. Affect-based trust also has strong effects on our dependent variable, but these are not as powerful as the effects of cognition-based trust. Our results also corroborate McAllister (1995), who found that cognition-based trust was a strong predictor of affect-based trust in peer manager relationships, and that some level of cognition-based trust might be necessary before affect-based trust emerges. This is important because while our results suggest that affect-based trust has only approximately 60 per cent of the impact of cognition-based trust on the effectiveness of marketing/R&D relationships, where it is present it can further increase the likelihood of NPD teams developing successful new products. Our findings also provide insights into the role of various communication behaviours in marketing/R&D relationships. Specifically, while two of the three communication dimensions in our model directly influence relationship effectiveness, their strongest effects are indirect. An important finding of our research is that both bi-directional communication and communication quality have strong trust-building effects. Where marketing managers provide high quality information to the R&D manager, this greatly increases the perceived competence of the marketing manager, and cognition-based trust is likely to develop. Similarly, bi-directionality helps increase both forms of interpersonal trust. This is most likely because bi-directional communication is a reciprocal form of communication which can help demonstrate not only the work-related competence required for cognition-based trust to emerge, but also the good personal intentions of the other manager required for affect-based trust to emerge. An important theoretical implication of our findings is that the functional effects of communication in improving relationship effectiveness appear to be mostly indirect, operating through various mediating variables such as interpersonal trust. A further theoretical implication is that contrary to the interactionist viewpoint, frequent communication does not greatly improve effectiveness directly. Its strongest effects are in stimulating bi-directional communication. This may be due to the norms of reciprocity in social systems discussed by Gouldner (1960), in which uni-directional communication between peer managers is likely to elicit a response, and thereby increase bi-directional communication. This finding is important because as noted above, bi-directional communication is associated with the development of both forms of trust, which in turn, are strong predictors of relationship effectiveness.

Turning now to the impact of Weber’s (1924) structural/bureaucratic variables, our results suggest that formalisation is useful during NPD because it greatly increases communication frequency, and also increases bi-directional communication between marketing managers and R&D managers. Our results therefore reveal two important things. The first is that formalisation is effective as a coordination mechanism during NPD. Second, we present evidence regarding how formalisation works during NPD, i.e. in stimulating effective exchanges between members of the NPD project team. Further, our results reveal that as expected, centralisation decreases bi-directional communication, and though the path coefficient linking centralisation to communication frequency was not statistically significant, it was in the hypothesised negative direction. Our results are therefore somewhat inconsistent with arguments that creative activities such as NPD benefit from more “organic” structures, with lower levels of formalisation and centralisation. It appears that while centralisation does decrease bi-directional communication as expected, some minimum level of bureaucratic “initiation of structure” (e.g. Stogdill, 1974) such as formalisation, is necessary on NPD projects. Managerial implications Our findings have implications for firms using cross-functional teams including marketing and R&D to develop new products, and our model testing provides insights into how to improve marketing/R&D relationships during such projects. One encouraging finding is that contrary to some previous studies (e.g. Souder, 1981, 1988; Shaw and Shaw, 1998), in many firms this relationship is healthy. This is important because successful NPD requires marketing managers and R&D managers to work together effectively (Gupta et al., 1986; Olson et al., 1995). The key managerial implication of our research, however, is the salience of interpersonal trust during NPD projects. Marketing managers should be aware that in order for R&D managers to begin trusting them, they must first demonstrate their competence and professionalism. Once this competence is demonstrated, cognition-based trust may develop, and the qualitatively more “special” form of trust, affect-based trust may then emerge ( Johnson-George and Swap, 1982). The positive effects of these two forms of trust on relationship effectiveness, both singly, and in combination, is substantial. A second set of implications relates to the importance of effective communication during NPD projects. In particular, both the quality and bi-directionality of communication are important because they are potent factors building interpersonal trust between marketing managers and R&D managers. This finding is significant because the more effective the marketing/R&D relationship, the greater the likelihood of new product success (Ruekert and Walker, 1987; Song et al., 2000). Hence the flow-on effects of effective communication, and interpersonal trust can ultimately influence “hard” measures of firm performance such as profitability, by improving new product success rates. A final implication of this research is that bureaucratic methods of cross-functional coordination such as formalisation, can provide a useful payoff by helping increase both the frequency and bi-directionality of communication flows between marketing managers and R&D managers. This in turn can help build trust, and effectiveness in the marketing/R&D relationship during NPD. In addition, and consistent with Weber’s (1924) theory of bureaucracy, more decentralised structures seem more appropriate for

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complex tasks such as NPD, because too much centralisation seems to inhibit the exchange of information between new product team members. Limitations and directions for future research A major limitation of our research is that it is restricted to R&D managers’ perceptions of the relationship. Future research should use dyadic data to examine the relationship from the perspective of both R&D managers and marketing managers. Another limitation concerns our subjective outcome measure – perceived relationship effectiveness. Whilst other studies have used this same approach (e.g. Anderson and Narus, 1990; Smith and Barclay, 1997), and given sound justification for doing so, given the context of our research, future work could use an objective, hard measure such as new product success as the dependent variable. We also recognise that one of the assumptions underlying our model testing procedure is the linearity of the structural relations between the model constructs. It is possible that some of these relations are non-linear, and further research could explicitly test the linearity of these relationships. Another suggestion concerns our choice of theoretical frameworks – the interaction approach, and Weber’s (1924) theory of bureaucracy. Cross-functional relationships are affected by a wide range of factors, and while these theoretical frameworks have provided important insights, future research could draw on other frameworks such as structural contingency theory (e.g. Donaldson, 1996), or resource dependence theory (e.g. Pfeffer and Salancik, 1978). This would open up different sets of explanatory variables, for example the impact of various “lateral linkage devices” (Olson et al., 1995), on trust and relationship effectiveness. In addition, it would be useful to examine the impact of other individual-level variables identified in the literature, for example interpersonal conflict, as conflict is an important behavioural variable with potent effects on cross-functional relationships, and a wide range of other social and exchange relationships. References Aiken, M. and Hage, J. (1968), “Organisational interdependence and intra-organisational structure”, American Sociological Review, Vol. 33, pp. 912-30. Anderson, J.C. and Gerbing, D.A. (1988), “Structural equation modeling in practice: a review and recommended two-step approach”, Psychological Bulletin, Vol. 103 No. 3, pp. 411-23. Anderson, J.C. and Narus, J.A. (1990), “A model of distributor firm and manufacturer firm working partnerships”, Journal of Marketing, Vol. 54, January, pp. 42-58. Anderson, E. and Weitz, B. (1989), “Determinants of continuity in conventional industrial channel dyads”, Marketing Science, Vol. 8, pp. 310-23. Ashforth, B.E. and Lee, R.T. (1990), “Defensive behavior in organizations: a preliminary model”, Human Relations, Vol. 43, pp. 621-48. Ayers, D., Dahlstrom, R. and Skinner, S.J. (1997), “An exploratory investigation of organizational antecedents to new product success”, Journal of Marketing Research, Vol. 34, February, pp. 107-16. Becerra, M. and Gupta, A.K. (2003), “Perceived trustworthiness within the organization: the moderating impact of communication frequency on trustor and trustee effects”, Organization Science, Vol. 14 No. 1, pp. 32-44. Bjo¨rk, L.E. (1975), “An experiment in work satisfaction”, Scientific American, March, pp. 17-23.

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Appendix Construct

Items

Adapted from

Formalisation

Seven-point scale anchored by (1) “completely disagree” and (7) “completely agree” (1) In coordinating the activities between Marketing and R&D during this project formal communication channels were generally followed (2) To coordinate Marketing and R&D activities during this project, standard operating procedures were established (3) During this project, the terms of the coordination between Marketing and R&D were explicitly verbalised, or written down Seven-point scale anchored by (1) “completely disagree” and (7) “completely agree” (1) I could take little action on the project until top management approved a decision (2) A person who wanted to make his/her own decision on the project would be quickly discouraged by top management (3) Even small project matters had to be referred to someone higher up for a final answer Seven-point scale anchored by (1) “never” and (7) “very frequently”. R&D Managers rated how frequently they communicated with the MM by: (1) electronic mail (2) voice mail (3) scheduled one-to-one meetings (face-to-face) (4) impromptu face-to-face conversations (e.g. in the hall) (5) scheduled one-to-one phone conversations (6) impromptu one-to-one phone conversations (7) informal face-to-face conversations in a non-work setting (e.g. after-work drinks, barbeques, etc.) (8) teleconferencing (9) hand-written memos (10) reports (11) fax machine Seven-point scale anchored by (1) “completely disagree” and (7) “completely agree” (1) The MM always responded to my communication (2) The MM provided me with a lot of feedback (3) There was much two-way communication between the MM and myself (4) We exchanged e-mail frequentlya Seven-point scale anchored by (1) “completely disagree” and (7) “completely agree” (1) The information provided by the MM was very useful for my work on this project (2) I was very satisfied with the content of the information provided by the MM on this project (3) The information provided by the MM was highly relevant to my work on this project (4) The information provided by the MM was highly credible (5) The form and presentation of the information provided by the MM was very satisfactory

Moenaert et al. (1994)

Centralisation

Communication frequency

Bidirectional Communication

Communication quality

Trust between marketing and R&D 1171

Moorman et al. (1993)

Morgan and Piercy (1998)

Fisher et al. (1997)

Moenaert et al. (1992)

(continued)

Table AI. Operational measures

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Construct

Items

Adapted from

Cognition-based trust

Seven-point scale anchored by (1) “completely disagree” and (7) “completely agree” (1) Most people, even those who aren’t close friends of the MM, trust and respect him/her as a fellow worker (2) He/she approaches his/her job with professionalism and dedication (3) Given his/her track record, I see no reason to doubt his/her competence and preparation for the job (4) I can rely on him/her to not make my job more difficult by careless work (5) Other work associates of mine who must interact with him/her, consider him/her to be trustworthy Seven-point scale anchored by (1) “completely disagree” and (7) “completely agree” (1) Ours is a relationship in which we both freely share our ideas, feelings, and hopes (2) I can talk openly to him/her about difficulties that I’m having at work and know he/she will want to listen (3) If I shared my problems with him/her, I know that he/she would respond constructively and with understanding Seven-point scale anchored by (1) “completely disagree” and (7) “completely agree” (1) Throughout this project, I was very satisfied with our working relationship (2) During this project, the MM fully carried out his/her responsibilities and commitments to meb (3) I think the time and effort that I spent developing and maintaining this working relationship was very worthwhile (4) During this project, the MM responded well to feedback and advice from myselfb (5) Overall, our working relationship was very successful

McAllister (1995)

1172

Affect-based Trust

Perceived relationship effectiveness

Table AI.

McAllister (1995)

Ruekert and Walker (1987)

Notes: aItem deleted following PLS analysis; bitem deleted on face validity grounds

About the authors Graham R. Massey is currently Lecturer in Marketing at the University of Technology, Sydney. He received his PhD in Marketing in 2004 from the University of New South Wales, Sydney. His research interests include B2B marketing, services marketing, and cross-functional relationships. His work has been published in such journals as: European Journal of Marketing, Journal of Business & Industrial Marketing and Journal of Product & Brand Management, and has also been presented at leading conferences such as EMAC and IMP. Graham Massey is the corresponding author and can be contacted at: [email protected] Elias Kyriazis is a Lecturer in Marketing at the University of Wollongong, Wollongong. He received his PhD in Marketing in 2006 from the University of Wollongong. His research interests include new product development, cross-functional relationships, and social and non-profit marketing. His work has been published in such journals as Journal of the Australasian Market Research Society, and has been presented at conferences such as ANZMAC and BMA/AMA.

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Role of electronic trust in online retailing A re-examination of the commitment-trust theory Avinandan Mukherjee School of Business, Montclair State University, Montclair, New Jersey, USA, and

Role of electronic trust in online retailing 1173 Received November 2005 Revised November 2006 Accepted March 2007

Prithwiraj Nath Nottingham University Business School, Nottingham, UK Abstract Purpose – Trust and commitment are the central tenets in building successful long-term relationships in the online retailing context. In the absence of physical interaction between the buyer and the seller, how websites can gain the trust of the buyers and deliver on the promises made have become central issues in online customer relationship management. This paper aims to re-examine the commitment-trust theory (CTT) of relationship marketing in the online retailing context. It seeks to theorize the antecedents and consequences of commitment and trust in the online context and identify how CTT can be adapted in a digitized business environment. Design/methodology/approach – Modified constructs and their measures are developed to understand the antecedents and the outcomes of commitment and trust. Survey data from British online customers (n ¼ 651) are used to test CTT hypotheses with structural equation modelling. Findings – The study suggests a significant modification to the traditional CTT model in the online environment. Privacy and security features of the website along with shared values are the key antecedents of trust, which in turn positively influences relationship commitment. Behavioural intentions of customers are consequences of both trust and commitment. The relationship termination cost has a negative impact on customer commitment. Research limitations/implications – The paper identifies interesting differences between the original work by Morgan and Hunt and the findings presented, but basically concludes that the commitment-trust theory applies to online retailing. Originality/value – Contributions of this study in re-examining the CTT model of relationship marketing in an online context are manifold. This paper proposes a modified model to understand the role of consumer trust and commitment in a digitized environment. The modified constructs and measures truly reflect the dynamism of online business. The extended CTT model can provide better insight into managing customer relationships in online retailing. Keywords Trust, Electronic commerce, Retailing, Mathematical modelling Paper type Research paper

Introduction The emerging digital economy has opened up new paradigms for retailing, and consumers across the world face new opportunities and challenges. The internet – the driving engine of the new economy – has given birth to online retailing, a new and increasingly popular way of selling products for most organizations in the twenty-first century. For example, between 2004 and 2005 in the UK, the online shopping

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community grew 25.5 per cent to reach 14.6 million consumers who bought £8.2bn ($14.3bn) of goods from websites – an increase of 28.9 per cent (see www.bbc.co.uk). Similarly, in the USA, consumers spent $670 million on Cyber Monday in 2006, which is 25 per cent higher than in 2005 (see www.usatoday.com). Online retailing is the carrying out of retailing activities with customers that leads to an exchange of value, where the parties interact electronically, using network or telecommunications technologies (Jones et al., 2000). The electronic hypermedia environment poses new challenges for relationship retailing, where it is in the interest of retailers to establish and maintain long-term bonds with customers (Berman and Evans, 2004). This new marketing medium and channel is now an integral part of the multi-channel strategy for most retailers. However, the physical separation of the buyer and the seller, and that of the buyers and the merchandise, and the overall environment of perceived insecurity on the internet provide unique challenges to online retailers to find ways in which to initiate and develop e-business relationships (Warrington et al., 2000). The popular press is replete with news on high-profile lapses in online security, increased incidence of spamming, hacking, and “phishing”, and figures suggesting that a large proportion of online “business” is fraudulent. Consumer concerns include a range of possibilities from fraud through the hacking of credit card numbers to leaking of personal information, resulting in excessive spam to identity theft (Newholm et al., 2004). In spite of these challenges, the retailer must develop a trustworthy relationship in order to increase sales on the internet and foster customer loyalty. The lack of physical presence of the product and the lack of physical interaction between the buyer and the seller renders online retailing a unique environment, in which trust is of paramount importance. Based on a study of online business, Lamonica (2000, p. 3) concluded: The success factors in e-business involve more than technology that can address security and to some degree, privacy: IT executives need to work with their customers to evaluate the value of trust in their business relationship.

Though online retailing is evolving at an unprecedented rate, participants at all levels still exhibit a fundamental lack of trust. Egger (2000) noted that “difficulty of use and lack of trust with respect to online payment privacy and customer service have been found to constitute a real psychological barrier to e-commerce”. It is widely felt, therefore, that the importance of trust in the e-business exchange deserves special attention (Warrington et al., 2000). Retailers can build mutually valuable relationships with customers through a trust-based collaboration process (Dayal et al., 2001). However, the way in which trust may be gained and the impact it has on e-business outcomes are not yet well understood (Jones et al., 2000). Factors relating to trust in online retailing have been seen from many different perspectives by researchers from different disciplines, and often expressed in different terms. There is a need for a common framework that will support a shared understanding of the concept of trust and its relations with its antecedents and consequences. This paper aims to provide a basis for such a multivariate framework. In this research, we examine the applicability of the highly cited commitment-trust theory of relationship marketing (Morgan and Hunt, 1994) in the online retailing context. Website design aspects, which are in the control of the retailer’s marketing and

internet/IT team, are studied as antecedents to trust and commitment, so that online retailers can draw some benefits from the study. Although the main variables are mostly borrowed from the commitment-trust framework, privacy and security are introduced as two additional antecedents to trust and commitment due to their salience in the context of online retailing. Also, the construct dimensions and the items are adapted significantly to the context of online retailing. We explore the relationships between trust and commitment and their key antecedents and consequences. We also attempt to find the relative importance of the key factors that influence trust (antecedents) and the behavioural outcomes that are influenced by trust (consequences). While most of the antecedents of trust and commitment that we use in our research have already been identified by Morgan and Hunt, we hypothesize that the online retailing environment might show some differences with regard to the applicability and relative importance of the antecedents, as well as the effects of trust and commitment on customers’ behavioural intentions. Is trust in online retailing conceptually different? Is trust in online retailing conceptually different? Some would argue that the new electronic environment is really just a different context for existing trust theories, while others claim that the new environment requires a re-examination of theories adapted to the realities of a radically transformed marketplace. Fortin et al. (2002) feel that this is a fascinating research question that is unlikely to be answered any time soon. Online trust is different from offline trust on the following parameters: . physical distance between buyer and seller, absence of salespeople, and separation between buyer and products (Yoon, 2002); . absence of simultaneous existence in time and space; . absence of human network attributes (i.e. audio, video, and sensual); and . absence of feedback and learning capability (Nohria and Eccles, 1992). The most important aspect of online retailing from the customer’s perspective is the increase in access and choice, and especially in the information on products and services. Previously, a typical customer would be limited to choosing among a few local retailers, banks, travel agents, stockbrokers, insurance agents and department stores (perhaps limited to one’s specific county, city, or state) (Balto, 2000). In the age of the internet, one can choose from scores of online retailers located anywhere in the world, leading to breakdown of borders and growth in the number of competitive alternatives. Along with this, there is also a tremendous growth in the number of online retailers, which can potentially provide consumers with a vast array of alternatives and new sources of information. It is precisely this potential increase in consumer sovereignty that would also lead to increased role of trust in online retailing. This, coupled with the physical separation of the buyer and the seller, and that of the buyers and the merchandise, make trust a core issue. Viewed from the perspective of classical management problems regarding the issue of trust in exchange, if the internet represents just another distribution channel or retailing model, one may wonder whether the internet context demands revisiting the traditional theories of trust. However, it has been argued by Hoffman and Novak (1996a, b) that the internet has unique characteristics that differentiate it from traditional marketing in important ways. The contribution of this

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research is best understood in the context of these differences. For example, a many-to-many interactive model underlies the web as a medium for exchange (Hoffman and Novak, 1996a). This means that customers can interact with retailers, with other customers and the technological environment. In a radical departure from traditional exchanges, consumers can also provide content, often outside the retailer’s control, to the medium (Novak et al., 2000). These differences imply the need to understand the role of trust in an environment in which the rules of customer engagement are likely to be different. Such a situation makes this context quite different even from telemarketing, traditional mail catalogue and phone reservations, which otherwise share lack of physical interaction between the buyer and the seller. Indeed, the internet is best visualized not as a simulation of the “real world”, in which case parallels are easily drawn from existing trust frameworks (Novak, 1999), but as an alternative, real, yet computer-mediated environment in which online exchange and the associated trust become paramount (Novak et al., 2000). It is in this perspective that the contribution of this research on trust in online retailing needs to be assessed. The theoretical background The research is grounded in the well-known commitment-trust theory of relationship marketing, originally proposed by Morgan and Hunt (1994). In their seminal paper, Morgan and Hunt showed that “relationship marketing” – the act of establishing, developing, and maintaining successful relational exchanges – constitutes a major shift in marketing theory and practice. Traditionally, the political economy paradigm highlighted the role of power to condition others as the key factor in network analysis (Thorelli, 1986). The commitment-trust theory (Morgan and Hunt, 1994) questioned this central hypothesis in view of relationship failures in strategic alliances. Focusing more on what makes relationship marketing successful, the commitment-trust theory espoused trust and relationship commitment as the key factors in building and maintaining successful relationship. According to the theory, trust and relationship commitment are central to successful relationship marketing, because they encourage marketers to: . work at preserving relationship investments by co-operating with exchange partners; . resist attractive short-term alternatives in favour of the expected long-term benefits; and . view potentially high-risk options as being prudent because of the belief that their partners will not act opportunistically. Based on the commitment-trust theory, Morgan and Hunt (1994) developed the key mediating variable (KMV) model of relationship marketing. The KMV model positioned trust and commitment as mediating variables between five antecedents (relationship termination cost, relationship benefits, shared values, communication, and opportunistic behaviour) and five outcomes (acquiescence, propensity to leave, co-operation, functional conflict, and decision making uncertainty). Although they tested the model in the context of automobile tire retailing, Morgan and Hunt (1994) claimed that their theory would apply for all relational exchanges involving suppliers, customers or employees. They felt a strong need for “further explication, replication,

extension, application and critical evaluation” of their theory and model. This is exactly what we attempt to do in this paper in the context of online retailing. The concept of trust Our main focus in this research is on the construct of trust, and commitment is considered as a necessary complement of trust. Trust, according to Spekman (1988), is so important to relational exchange that it is “the cornerstone of the strategic partnership” between the seller and the buyer. Trust is a multi-disciplinary concept, incorporating ideas from economics, marketing, sociology, psychology, organization behaviour, strategy, information systems, and decision sciences. Trust has been defined in various ways in the literature. “Trust is a psychological state comprising the intention to accept vulnerability based on positive expectations of the intentions or behaviors of another” (Rousseau et al., 1998, p. 395). Trust is willingness to rely on an exchange partner in whom one has confidence (Moorman et al., 1993). Morgan and Hunt (1994) felt that trust exists when one party has confidence in an exchange partner’s reliability and integrity. According to Deutsch (1960), trust consists of two components: confidence in ability and intention. The dimensions of trust Various dimensions of trust have been identified in the literature (see Bart et al., 2005; Newholm et al., 2004; Yoon, 2002). Since our study is aimed at a re-examination of the commitment-trust theory, we adopted the customer’s propensity to trust the retailer, customer confidence in the website, and the customer’s trust in internet technology features as the key dimensions of trust in an online retailer (Morgan and Hunt, 1994; Mukherjee and Nath, 2003). Propensity to trust is important in economic transactions as it reduces perceived risk (Humphrey and Schmitz, 1998). This is particularly important in the case of online retailing, where the buyer and the seller are physically separated, contingencies are difficult to predict and incorporate into contracts, relationships are difficult to monitor, and cyber-laws are not well defined. A high level of satisfaction with services received in previous online transactions is likely to increase propensity to trust (Pavlou and Chellappa, 2001; Rutter, 2000). There are arguments that the level of customers’ experience is related to their propensity to trust. Online customers with a high propensity to trust perceive the risk to be less and thus have more trust in online transactions (Ba, 2001). Confidence is another dimension of trust (Moorman et al., 1993; Morgan and Hunt, 1994; Deutsch, 1960). Customer confidence arises from the online retailer’s reputation, which is defined as faith in overall quality or character as seen or judged by people in general (Malaga, 2001). Confidence also arises from the strength of the brand name, endorsement from trusted third parties, and previous interactions on- and/or offline (Egger, 2000). Ba (2001) concluded that when customers feel low on confidence about an online retailer, they would be discouraged from purchasing from that website. For gaining confidence, customers also assess the abilities of the retailer, which are based on the skills and competencies that the retailer possesses in electronic transactions (Lee and Turban, 2001). Customers’ trust in the technology of electronic communication and the internet is frequently a proxy for their trust in an online retailer. Their trust in technology is likely to correlate with their overall trust when engaging in online activities (Lee and Turban, 2001). Customers with different levels of trust in technology use various performance

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measures such as speed, reliability, availability, navigability, order fulfilment, and customization to determine their trust in electronic transactions (Lee and Turban, 2001). Technology-based trust influences the perceived reliability of the system. Therefore, customers’ perception of the technological competency of the electronic communication system is very important in their information processing behaviour and perceived trust.

1178 The trust-commitment interaction According to Morgan and Hunt (1994), a critical complement of trust in exchange relationships is commitment. Moorman et al. (1992) defined relationship commitment as an enduring desire to maintain a valued relationship. Trust influences relationship commitment. Partners in business value trust-based relationship very highly and commit themselves to such relationship (Hrebiniak, 1974). McDonald (1981) uses social exchange theory and principle of generalized reciprocity to explain how mistrust decreases commitment in the relationship. The trust-commitment interaction has also been demonstrated by Achrol (1991), Moorman et al. (1992) and Morgan and Hunt (1994). Thus, we hypothesize that as trust increases, commitment also increases. Trust and commitment are at the centre of our proposed model. Influencing trust and commitment are the set of antecedents and influenced by them are the behavioural intentions. The antecedents to trust Based on an extended adaptation of the commitment-trust theory, we identified five main antecedents to trust: (1) shared values; (2) communication; (3) opportunistic behaviour; (4) privacy; and (5) security. According to Hoffman et al. (1999), there is a higher degree of consumer concern about security and privacy issues on the web in comparison with equivalent transactions through conventional channels. We therefore introduced privacy and security as two additional antecedents to trust in addition to the three antecedents proposed by Morgan and Hunt (1994). Shared values. Shared value is the extent to which partners have beliefs in common about what behaviours, goals and policies are important or unimportant, appropriate or inappropriate, and right or wrong (Morgan and Hunt, 1994). Ethics is a key aspect of shared value. Morgan and Hunt (1994) have conceptualized shared values through the extent to which ethics is compromised and the consequences of unethical behaviour. High standards of retailer ethics such as e-governance, taking permission from users for mailing lists or preventing kids from accessing adult content are especially important for online retailing. We hypothesize that in online retailing, when there is a higher perception of shared values, such perceptions will lead to increased trust.

Communication. Communication, defined as the formal as well as informal sharing of meaningful and timely information (Anderson and Narus, 1990), fosters trust by assisting in resolving disputes and ambiguities, provides accurate information on order processing, and aligning perceptions and expectations (Etgar, 1979). Anderson and Narus (1990), Morgan and Hunt (1994), and Mukherjee and Nath (2003) have used communication as an antecedent of trust. In this research, communication is considered as a multidimensional construct. We consider three key aspects of communication: (1) openness; (2) quality of information; and (3) quality of response (Mukherjee and Nath, 2003). Openness, which is an aspect of good business morality, builds trust (Huemer, 1998). Trust is negotiated through communication and open interaction and is specific to the individuals involved and their relationship. Research conducted by Gefen and Straub (2001) found that man-machine communication, or at least the belief that the system has characteristics of social presence, is critical to building online customer trust. The extent to which an online retailer can enhance its social communication in terms of openness, authenticity of information, speed of response, relevance of information, quality of information, and feedback systems determines the ability of the site to address needs for e-customers. The quality of information is measured in terms of its authenticity, relevance and completeness. Quality of response addresses the speed of response and the frequency of response. We hypothesize that in online retailing, the communication between the retailer and the customer is positively related to trust. Opportunistic behaviour. Opportunistic behaviour has its roots in the transaction cost literature, and is defined as self-interest seeking with guile (Williamson, 1975). In this research, opportunistic behaviour has been conceptualised as the extent of violation of rules and information distortion (Mukherjee and Nath, 2003). The integrity of the online sellers and likelihood of violation of rules, regulation and obligations are major determinants of customer trust in online shopping (Lee and Turban, 2001). When customers process online information, they assess the probability and likely extent of the retailer’s opportunistic behaviour. Due to the higher risk of opportunistic behaviour by online retailers, customers have lower levels of trust in online transactions (Clay and Strauss, 2000). They are uncertain of whether the online retailers would at all deliver the goods or whether the delivered goods would be of lower quality than represented (Klang, 2001). In addition, websites can be counterfeited, online identities can be forged (Ba, 2001) and electronic documents can be falsified (Bailey and Bakos, 1997). Therefore, the customer’s level of trust would be partly based on whether he or she believes that the retailers would fulfil their obligations. Klang (2001) pointed out that customers would also assess the retailer’s interests and then make a judgement about their integrity. Customers would also determine whether a degree of trust based on knowledge of the online retailer exists (Sultan et al., 1999). It can thus be seen that under conditions of uncertainty and risk, the integrity of the online retailers is very important in helping customers to gain trust in online activities.

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Information distortion and asymmetry is another important factor that affects customers’ trust when they are engaging in online activities. The extent of the information asymmetry affects the way they process online information. Furthermore, in electronic transactions, customers cannot view the actual physical products or touch the products (Lee and Turban, 2001). Thus, they cannot assess the quality of the products before making any purchase decision. Under conditions of incomplete information on the quality of the products, customers frequently lack the trust to engage in online transactions (Ba, 2001). We hypothesize that in online retailing, when customers believe that the retailer is engaging in opportunistic behaviour, or vice versa, such perceptions will lead to reduced trust. Privacy and security. Privacy addresses the issue of protection of individually identifiable information on the internet. Privacy policies of an online retailer involve the adoption and implementation of a privacy policy, notice, disclosure, and choice/consent of consumers (Bart et al., 2005). Benassi (1999) states that mechanisms such as trust-providing intermediaries and institutional infrastructures that establish and enforce rules and regulations can build trust by addressing privacy concerns. A number of surveys have found consistently high levels of concern about privacy in online purchase behaviour (Ackerman et al., 1999; Swaminathan et al., 1999). Security is another factor that affects customer trust in online retailing. Security provided by an online retailer refers to the safety of the computer and credit card or financial information (Bart et al., 2005). Customers believe that the internet payment channels are not always secure and could potentially be intercepted (Jones and Vijayasarathy, 1998). This reduces the customer’s level of trust, discouraging them from providing personal information and making online purchases. On the other hand, Klang (2001) argues that the level of uncertainty and risk that customers perceive in online transactions is not dependent on whether the transactions are actually secure or not. Even if retailers adhere to a scientific assessment of security and privacy based on technological solutions and legal guidelines, customers’ perceived sense of privacy and security would still be necessary to create the required level of trust to enable online transactions (Pavlou and Chellappa, 2001). Despite huge investments in privacy mechanisms such as proper handling of user information and responsible use of cookies, and in security technologies such as privacy seal programs, authentication mechanisms, and encryption, there is ambiguity as to whether these investments have an impact on online customers’ perceptions about privacy and security, as customers differ in their general perceptions about privacy and security concerns. Klang (2001) also found that even though the development of technological and legal mechanisms for secure payment and protection of identity have improved online security and privacy, it does not adequately increase customers’ faith in electronic transactions. However, one study has shown that recent developments in internet payment systems have caused the average customer to be less concerned about the security of electronic exchanges or privacy issues (Swaminathan et al., 1999). Interestingly, Novak et al. (2000) identified security as one of the least important factors in creating a compelling online environment. We hypothesize that in online retailing, when there is a higher perception of privacy and security, such perceptions will lead to increased trust.

The antecedents to commitment Morgan and Hunt (1994) identified three antecedents to commitment: (1) relationship termination cost; (2) relationship benefit; and (3) shared value. “Relationship termination costs” are all expected losses from termination of the relationship, and result from the perceived lack of comparable potential alternative partners, relationship dissolution expenses, and/or substantial switching costs (Morgan and Hunt, 1994). It is measured by contractual obligation and partnership stake. We hypothesize here that higher expected relationship termination costs will lead to higher commitment. “Relationship benefit” is any addition in perceived customer value that comes out of a business relationship. Such customer value could arise from the nature of association and the sense of belonging. We hypothesize in this research that higher relationship benefits get translated into higher commitment. Consistent with the organizational behaviour literature, we hypothesize that when the online retailer and the customer share some values they will be more committed to their relationship. Shared value, therefore, positively impacts on commitment.

The consequence of trust (and commitment) “Behavioural intention” is the consequence of both trust and commitment. Based on Morgan and Hunt (1994), we conceptualize behavioural intention as consisting of word of mouth communication, purchase intention and continued interaction. Word-of-mouth communication is defined as the willingness to engage in informal conversations about the product between people who are independent of the company providing the product, and in a medium independent of the company (Silverman, 1997). If trust and commitment are high, positive word-of-mouth communication is more likely. Various researchers have suggested that online customers’ trust will positively influence their adoption of internet to search for information and subsequently, their intention to purchase online. With a greater degree of trust in the online retailer, customers are more willing to make online purchases (Jarvenpaa et al., 1999; Novak et al., 1999; Stratford, 1999; Sultan et al., 1999; Gefen and Straub, 2001). Hoffman et al. (1999) argued that the likelihood of customers’ preferential usage of the internet to buy products over traditional physical stores is influenced by the amount of customer trust concerning the delivery of goods and use of personal information. In contrast, Luo (2001) stated that the relationship between trust and purchasing online is indirect, as there could be many factors that affect online purchases. Continued interaction in our study measures the likelihood of repeat and preferential usage of Internet over the short and long terms. We hypothesize that both trust and commitment have positive effects on customers’ online behavioural intentions. Theory suggests that these outcomes of trust and commitment promote relationship marketing success (Morgan and Hunt, 1994).

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Hypotheses The overall model being tested in this research is given in Figure 1. Stated in formal fashion, our study tests 11 hypotheses: H1. There is a positive relationship between trust and relationship commitment. H2. There is a positive relationship between shared values and trust.

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H3. There is a positive relationship between communication and trust. H4. There is a negative relationship between opportunistic behaviour and trust. H5. There is a positive relationship between privacy and trust. H6. There is a positive relationship between security and trust. H7. There is a positive relationship between shared values and relationship commitment. H8. There is a positive relationship between relationship benefits and relationship commitment. H9. There is a positive relationship between relationship termination costs and relationship commitment. H10. There is a positive relationship between trust and behavioural intentions. H11. There is a positive relationship between commitment and behavioural intentions. The list of variables in the study and the measures used are provided in Table I. Construct definition The model that we test here has ten constructs, each having multiple items that are measured using a five-point Likert scale (1 ¼ strongly disagree and 5 ¼ strongly agree). Our survey instrument was developed on the basis of a qualitative phase consisting of 15 depth-interviews, and then an extensive pilot testing (n ¼ 60, comprising 12 students, 30 working professionals from various industries and 18 self-employed people), leading to the adaptation of existing scales wherever appropriate. Table I lists the ten constructs and the corresponding 51 measures used in the final survey. The shared value scale is obtained using a three-item scale modified from Morgan and Hunt (1994). The scale for website communication effectiveness is adopted from Morgan and Hunt (1994) and Moorman et al. (1993) and modified in the internet context. The measurement scale for opportunistic behaviour is developed from Morgan and Hunt (1994) and Klang (2001). Measures for privacy and security are adopted from Cheung and Lee (2001) and then modified using the feedback from qualitative interviews. The measures for the construct trust are taken from Morgan and Hunt (1994) and Egger (2000). The measurement scales for relationship benefit, termination costs and relationship commitment are borrowed from Morgan and Hunt (1994) and Dabholkar (1996), and modified on the basis of user interviews and pilot testing. The one-item measures for word-of-mouth and purchase intention are taken from Silverman (1997) and Sweeney et al. (1999), respectively. We modified the propensity to

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Figure 1. Proposed model

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Main construct

Variable number

Sub construct

Item measures

Shared values

X1

Ethics

The online retailer takes measures to prevent kids from accessing adult content if any (SV1) The online retailer allows users to select or deselect their inclusion on mailing lists or promotional campaigns (SV2) The online retailer sticks to highest level of business ethics in all its transactions (SV3)

Information protection

The online retailer does not divulge or sell customer information without the customer’s consent (P1) The customer does not receive unsolicited emails from this online retailer (P2)

Safety features

The customer’s credit card information is not prone to leakage (S1) The security features used by the online retailer are latest (S2) The online retailer uses payment gateways for transactions instead of using its own payment mechanisms (S3) The online retailer has not been hacked in the past (S4)

X10

Quality of information

X11

Quality of response

The online retailer provides high quality information (C1) The information provided by the online retailer contains visual effects (C2) The online retailer clearly mentions all tax, duties, shipping rates and any hidden costs to the customer before purchases are approved (C3) The online retailer only provides relevant information for the customer (C4) The online retailer allows customers to track order status on the website (C5) Minimum number of clicks are required to reach the relevant information (C6) The online retailer provides proofs to support its claims (e.g. mentioning the result of a poll/study) (C7) The online retailer keeps its customers informed about the latest developments (C8) The response of the online retailer to customer query is immediate (C9) The online retailer regularly seeks feedback from its customers (C10) The customer is able to provide online ratings to products and services offered on the website of the online retailer (C11) (continued)

X2

1184 X3 Privacy

X4 X5

Security

X6 X7 X8 X9

Communication

Table I. List of variables and measures

Main construct

Opportunistic behaviour

Trust

Variable number

Sub construct

Item measures

X12

Openness

The online retailer clearly mentions its rules, regulations, policies and practices to the customers (C12) The website of the online retailer creates an open environment where customers can freely interact with other customers and communicate on the products and services of the company (C13)

X13

Violation of rules

X14

Information distortion

X15

Propensity to trust I trust this website as a safe medium for transaction and purchase (T1) One should be very cautious when transacting on this website (T2) I believe there is negligible risk that something may go wrong with using this website for purchase (T3) I frequently change password of my account on this website (T4) I always read the online retailer’s policies and terms before transacting (T5) This online retailer can be counted on to do what they say they will do (T6) Trust in internet New technologies on this website are beneficial technology for business (T7) New technology in the website like Flash, animation and visual effects fascinate me (T8) Confidence in I transact with the website only when it is website endorsed by someone (T9) I give my personal information only when the online retailer has a good reputation (T10) I use the website when I think it is popular (T11)

X16

X17

Relationship benefit

X18

Personalization of service

X19

Loyalty rewards

Role of electronic trust in online retailing 1185

To accomplish its own objectives, sometimes the online retailer does not adhere to the rules and regulations agreed upon by both parties (OB1) The product information on the online retailer’s website is not authentic (OB2) The disclaimers are not prominently mentioned on the website (OB3)

The website provides information to the user according to the needs of the customer (RB1) The online retailer gives personal attention to customer complaints (RB2) The advertisements and offers that the customer receives are according to his/her tastes and preferences (RB3) The online retailer gives special offers to regular customers (RB4) The online retailer gives redeemable points to regular visitors/buyers (RB5) (continued)

Table I.

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Main construct Relationship termination cost

1186 Relationship commitment

Variable number

Sub construct

Item measures

X20

Contractual obligation

X21

Partnership stake

The online retailer has a policy of forfeiting the registration fee on cancellation of membership (TC1) I look for building a long-term relationship while initiating transaction with the online retailer (TC2)

X22

Nature of association

X23 Behavioural intentions

Y24 Y25 Y26

Table I.

I feel a very high degree of association with the online retailer I transact with (RC1) I have a very long association with the online retailer that I transact with (RC2) Sense of belonging I feel a sense of belonging to the online retailer I transact with (RC3) Word of mouth

I would like to talk to my friends and acquaintance about the online retailer (BI1) Purchase intention I would like to increase my share of purchase from the online retailer compared to physical stores (BI2) Continued I would like to continue using the services of the interaction online retailer through the next six months (BI3) I would like to continue using the services of the online retailer through the next one year (BI4) I would like to continue using the services of the online retailer through the next two years (BI5)

Notes: In the LISREL models, X denotes exogenous (or independent) variables and Y denotes endogenous (or dependent) variables. For example, X8 stands for variable 8, which is an exogenous variable in the model. Ten items (C4, C6, C8, C10, T3, T6, T8, T11, RC2, BI5) of the 51 items listed above were subsequently not considered for further analysis based on the Lagrangian multiplier test

leave scale (Hoffman and Novak, 1996a) to develop our three items for continued interaction. The summary statistics for the model construct items are furnished in Table II. In view of the exploratory nature of this study, many scale items from previous studies had to be adapted to our context. Where no suitable measures were found, the scale items had to be specifically developed for the study. Reliability tests were performed on the variables using pilot-test data and on the final data. The Cronbach’s a scores obtained ranges from 0.70 to 0.87, all above the recommended minimum of 0.70 (Nunnally, 1978). The reliability estimates of the latent constructs and their measures used in this study are presented in Tables III and IV. Online data collection Our final survey instrument was emailed to two key web user segments – professionals and students – in their respective e-groups of a large British university. Alumni of medical and business schools (2,043 members with 410 complete responses) and their current students (1,100 members with 241 complete responses) were contacted. Overall, 3,143 e-group members were contacted by e-mail and 651 completed

Mean

Standard deviation

Shared value X1 X2 X3

3.82 3.99 4.07

0.51 0.68 0.42

Privacy X4 X5

3.44 3.50

0.68 0.65

Security X6 X7 X8 X9

3.60 3.84 4.02 3.1

0.59 0.67 0.61 0.41

Communication X10 X11 X12

3.47 3.39 2.99

0.64 0.59 0.63

Opportunistic behaviour X13 X14

3.56 3.17

0.97 0.73

Trust X15 X16 X17

3.46 3.02 3.59

0.48 0.57 0.83

Relationship benefit X18 X19

3.27 3.17

0.61 0.85

Termination cost X20 X21

3.04 3.16

1.03 0.99

Commitment X22 X23

3.35 3.17

0.89 0.77

Behavioural intention Y24 Y25 Y26

3.79 3.75 3.87

0.79 0.41 0.56

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our survey, signifying a response rate of 21 per cent. The e-mail was accompanied by a covering letter explaining the purpose of the study and a link to the survey questionnaire, which could be filled in online. All the questions asked were pertaining to the most visited online retail website of the respondent. Since our survey employs non-probabilistic convenience sampling with self-selection bias, it is not entirely representative of general web users. Before running the analysis, the data collected was tested for multivariate normality, linearity, and homoscedasticity. Normal probability plots and

Table II. Summary statistics for the model constructs

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1188 Table III. Reliability estimates for the model constructs

Cronbach’s a Shared values Privacy Security Communication Opportunistic behaviour Trust Relationship benefit Relationship termination cost Relationship commitment Behavioural intentions

0.70 0.70 0.78 0.80 0.73 0.72 0.79 0.78 0.71 0.81

Cronbach’s a

Table IV. Reliability estimates for the sub-construct level latent variables

Ethics (three items) Information protection (two items) Safety features (four items) Quality of Information (five items) Quality of response (two items) Openness (two items) Information distortion (two items) Propensity to trust (four items) Confidence (two items) Personalization of service (three items) Loyalty rewards (two items) Continued interaction (two items)

0.70 0.70 0.78 0.77 0.87 0.70 0.81 0.75 0.80 0.71 0.77 0.84

Note: All other variables (eight variables) have single-item measures, hence Cronbach’s a is not calculated

Kolmogorov-Smirnov (K-S) test were used to assess the multivariate normality. K-S values were significant at 0.05 levels for all measured variables. Graphical methods like scatter plots and test of equal variance dispersion were used to test the assumptions of linearity and homoscedasticity (Hair et al., 1995). Respondents were prompted by the web server to complete any omitted items. So, our final sample size was 651 with no missing responses. Following Novak et al. (2000), our sample was randomly split unevenly into calibration sample (n ¼ 400) and validation sample (n ¼ 251) for model validation. Structural model construction and validation We followed a two-stage approach of structural equation model construction and cross-validation as prescribed by Gerbing and Anderson (1988) and applied by Novak et al. (2000). First, we assessed the goodness-of-fit for the model using confirmatory factor analysis (CFA). We used the correlation matrix of the calibration sample as the input for model estimation rather than the covariance, as correlations are much more easily interpreted and give the pattern of relationships among the exogenous and endogenous constructs (Hair et al., 1995). The results were inspected for negative

variances, standardized coefficients exceeding 1, and large standard errors associated with any estimated coefficient and the measurement fit was obtained using absolute fit measures of the adjusted goodness-of-fit index (AGFI), comparative fit index (CFI) and root mean square error of approximation (RMSEA). Composite mean values of sub-constructs were used for analysis. The RMSEA value of our structural model (see Figure 2) turned out to be 0.058, where the recommended RMSEA value should be below 0.08 for reasonable fit and below 0.05 for a close fit (Browne and Cudeck, 1993). The incremental fit measured by AGFI was 0.91, which was marginally above the recommended value of 0.9 (Hair et al., 1995). The parsimonious fit measured by the CFI was 0.922, which should have a minimum value of 0.9 for a close fit (Bentler, 1990). In the second stage, we used the Lagrange multiplier (LM) test as suggested by Novak et al. (2000) to identify the measured variables that are loaded on multiple latent factors. For each of the latent variables (Xs), we estimated a restricted regression using some of the measured items and obtained the residuals. The residual values are then regressed on all the measured items as the regressors. We identified two items of X10 (C4 and C6), two items of X11 (C8 and C10), two items of X15 (T3 and T6), one item of X16 (T8), one item of X17 (T11), one item of X22 (RC2), and one item of Y26 (BI5) as the surplus measured variables loaded on the same latent factor and thus deleted them. Thus, the initial 51 items in the measurement scale were reduced to 41 items. The RMSEA of the modified model was 0.054, AGFI was 0.921 and CFI was 0.929, which closely satisfied the requirements for an excellent fit. Cross-validation of the model For the purpose of cross-validating our model, we re-estimated the model parameters with our validation sample of 251 respondents. The overall goodness of fit parameters with the validation sample was as follows: RMSEA ¼ 0:058, AGFI ¼ 0:921 and CFI ¼ 0:928. All these indices were within the specified limit suggesting cross validity of our structural model. We conclude that the model fits well and represents a close approximation to the population. The standardized path coefficients, all significant at p , 0:05 are given in the LISREL results. The LISREL results for the structural model are presented in Figure 2. A rival model Following Morgan and Hunt (1994), we propose a rival model as shown in Figure 3, where trust and relationship commitment do not act as mediators between the five independent variables and behavioural intention but rather act as antecedents along with the independent variables. Although there is no theoretical justification for this rival model, the effects of the individual antecedents on outcome variable are well researched (Morgan and Hunt, 1994). We evaluate the rival model on the basis of absolute fit (RMSEA ¼ 0:11), incremental fit (AGFI ¼ 0:798), and parsimonious fit (CFI ¼ 0:712) (see Table V). All the goodness-of-fit measures fall below acceptable levels. We also find that only four out of nine (44 per cent) of the model’s hypothesized relationships are statistically significant at the p , 0:05 level. We further examined the mediation effect of trust and commitment using the procedures recommended by Baron and Kenny (1986) and Sobel (1982). The Baron and Kenny tests involve regressing:

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1190

Figure 2. Structural model and findings

Role of electronic trust in online retailing 1191

Figure 3. A rival model

Proposed model Path Termination cost-commitment Relationship benefit-commitment Shared value-commitment Shared value-trust Communication-trust Opportunistic behaviour-trust Privacy-trust Security-trust Trust-commitment Trust-behavioural intentions Commitment-behavioural intentions RMSEA ¼ 0:054 AGFI ¼ 0:921 CFI ¼ 0:929

Rival model Estimate Path 2 0.28 0.81 0.38 0.52 0.34 2 0.71 0.88 0.74 0.72 0.77 0.69

Shared value-behavioural intentions Privacy-behavioural intentions Security-behavioural intentions Communication-behavioural intentions Opportunistic behaviour-behavioural intentions Relationship benefit-behavioural intentions Termination cost-behavioural intentions Trust-behavioural intentions Commitment-behavioural intentions

Estimate 0.19 0.24a 0.21a 0.11 20.02 0.06 20.11 0.41a 0.37a

RMSEA ¼ 0:11 AGFI ¼ 0:798 CFI ¼ 0:712

Notes: For the proposed model, all loadings are significant at p , 0:05; aloadings significant at p , 0:05

Table V. Analysis of competing structural models

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. . . .

1192

the the the the

antecedents on the mediating variable; mediating variable on the outcome variable; antecedents on the outcome variable; and antecedents and mediating variable on the outcome variable.

For mediation to be established, the antecedents should be related to the mediating variable, the mediating variable should be related to the outcome variable, and the effect of the antecedents on the outcome variable should be diminished by the mediating variable. In our analyses, all the conditions for mediation are met, and the tests show that the influences of shared value, communication and opportunistic behaviour on behavioural intentions are completely mediated through trust and commitment, and the influences of privacy and security are partially mediated. Thus, we find that trust and relationship commitment act as mediators between the antecedents and behavioural outcome, and the superiority of our proposed model over the rival model is established. Key findings There is a strong positive linkage between trust and relationship commitment. This re-confirms the fundamental tenet of the commitment-trust theory. H1 is established. Measures of relationship commitment like nature of association and sense of belonging have significant impact on the construct. Trust is significantly influenced by all its measures with confidence in website playing a crucial role. Shared value is a significant determinant of trust. It enhances the feeling of association, develops bonding and builds long-term relationships. Thus, H2 is confirmed. Within shared values, maintaining highest level of ethics in all business transactions is the most significant issue. Communication also plays a significant role in creating trust. Thus, H3 is confirmed. Quality of response is most critical to communication. Opportunistic behavior tends to have a significant negative impact on trust. Thus, H4 is confirmed. Violation of rules plays a significant role in fostering opportunistic behaviour. Privacy turns out to be the most significant determinant of consumer trust. It is an expected result as privacy is the key factor affecting the trustworthiness of an online retailer. Thus, H5 is confirmed. Revealing or selling consumer information for commercial purpose is the crucial determinant of trust. Security is the second most important determinant of consumer trust. Use of secured payment mechanisms, no leakage of credit card information, and past attempt on website hacking all played significant role in developing a sense of security in the consumers mind. Thus, H6 is confirmed. Secured credit card transaction information is the most important determinant of security. Shared value has significant impact in developing relationship commitment. The impact, however, is less for relationship commitment than for trust. Nevertheless, H7 is confirmed. Relationship benefit has very high positive impact on commitment. Therefore, H8 is confirmed. Personalization of service and loyalty rewards significantly impact relationship benefit.

Termination cost is negatively correlated with relationship commitment. This goes against our hypothesis that there is a positive relationship between relationship termination cost and commitment. Thus, H9 is disproved. Both contractual obligation and partnership stake constitute termination cost. Both trust and commitment have significant impact on customers’ behavioral intentions. Higher values of consumer trust leads to higher intentions to engage in e-transactions. Thus, H10 is confirmed. Behavioural intentions are positively affected by higher level of commitment. This establishes H11. It is worth noting that trust has a greater impact on consumer behaviour than commitment. The results of the 11 hypotheses and their comparison to Morgan and Hunt’s (1994) propositions are summarized in Table VI.

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Discussion of results The major objective of this study was to re-examine the commitment-trust theory proposed by Morgan and Hunt (1994) in the online retailing context. We theorized a model in which shared values, communication, opportunistic behaviour, privacy and security act as antecedents to trust between an online retailer and its consumers. Relationship benefit and termination cost act as antecedents to commitment.

Hypothesis

Our results

Results from Morgan and Hunt (1994)

H1

There is a positive relationship between trust and relationship Supported commitment

Supported

H2

There is a positive relationship between shared values and trust

Supported

Supported

H3

There is a positive relationship between communication and trust

Supported

Supported

H4

There is a negative relationship between opportunistic behaviour and trust

Supported

Supported

H5

There is a positive relationship between privacy and trust

Supported

Not proposed

H6

There is a positive relationship between security and trust

Supported

Not proposed

H7

There is a positive relationship between shared values and relationship commitment

Supported

Supported

H8

There is a positive relationship between relationship benefits and relationship commitment

Supported

Not supported

H9

There is a positive relationship between relationship termination costs and relationship commitment

Not supported Supported

H10 There is a positive relationship between trust and behavioural Supported intentions

Not proposed

H11 There is a positive relationship between commitment and behavioural intentions

Not proposed

Supported

Table VI. Summary of hypotheses testing

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Relationship commitment and trust act as key mediator variables which significantly affect the user’s behavioural intentions, like the propensity to spread positive word-of-mouth, purchase intentions and continued interaction with the online retailer. Investigation of the hypotheses with survey data from internet users (n ¼ 651) reveals that trust and commitment are the central constructs in building successful long term relationship in the online retailing context.

1194 Shared values Our research reveals that shared value is a significant determinant of electronic trust. Shared value also leads to increased commitment from the customer. The customer on the net looks for a better association with the online retailer. Shared values enhance the feeling of association, develop a bonding and nurture an associative long-term relationship. This then leads to the birth of trust. Thus, in order to develop a trust-based relationship, the online retailer must strive to foster a culture of ethics to inculcate positive shared values in the relationship. Communication Communication is also found to play a critical role in building retailer-consumer trust relationship on the internet. Customers expect a high quality of response and information, openness in communication, feedback and speed of response from an online retailer. Responding effectively to customer complaints and providing real-time information on order fulfilment are critical examples of online communication. Dutta and Segev (1999), based on a survey of leading websites, found that nearly all encouraged customer feedback, typically via the website. Since online communication is inherently two-way, a personalised and customised customer dialogue that is helpful, positive, timely, useful, easy, and pleasant can go a long way in cementing a trust-based customer relationship. Opportunistic behaviour As expected, opportunistic behaviour, measured by attributes like distortion of information and violation of rules and regulations, has a negative influence on trust. Online retailers should ensure dissemination of authentic information to the consumers to prevent negative images in the minds of the users. Coherence between what the online retailer promises and delivers, and hosting correct product related information with appropriate disclaimers, can reduce the perception of opportunistic behaviour amongst web-users. Track records of order fulfilment and respecting price promotions and deals with fairness help to reduce perceptions of opportunistic behaviour. No wonder that online retailers can increase customer trust by means of personal integrity, upheld promises, and forgone opportunistic behaviour (Yoon, 2002). Privacy Privacy is the most significant determinant of consumer trust. The importance of online privacy in terms of protection of individual information (personal or financial) can hardly be overemphasized (Hoffman et al., 1999). Information on privacy policies, disclosures, and consent of the visitors is greatly emphasized in the e-commerce literature (Bart et al., 2005). Consumers expect that online retailers have a clearly visible privacy policy that they will not divulge or sell customers’ personal information

without their consent, but that they will provide them with the opportunity to opt out of the reselling of personal information, and send no unsolicited promotional e-mails. Privacy turns out to be more crucial for retail websites that require detailed customer information, particularly financial information. Security Security proved to be the second most important determinant of consumer trust in the online retailing context. Consumers consider security to be a key issue in making any purchase online and look for authentication seals as a measure of trustworthiness (Bart et al., 2005). We found that consumers are extremely concerned about the possibilities of technological loopholes leading to credit card information leakage and incidents of any hacking attempts on the website. Use of the latest security features is also a significant requirement to make the website more trustworthy. The issues of privacy and security as antecedents to trust and commitment are not explored in the model of Morgan and Hunt (1994). In traditional relationship marketing literature, trust is dependent on the buyer-seller relationship and evolves over time on the basis of the seller’s reliability, honesty and integrity. The issue of trust in the online context is quite different as it is more dependent on the technology (or the website) rather than physical interaction between the buyer and the seller. A consumer’s trust and commitment towards a website depends on his/her perception of how the website meets his/her expectations on integrity, delivers as per the promises made, and how dependable it is (Bart et al., 2005). So, we are not surprised to see the dominance of privacy and security in our attempt to re-examine the model of Morgan and Hunt (1994) in an online retailing context. Relationship commitment Our findings relating to relationship commitment differ from Morgan and Hunt (1994) in two significant ways. Morgan and Hunt (1994) found no support for their hypothesis of positive relationship between relationship benefits and commitment. They attributed this result to their comparative measure of relationship benefits, which required respondents to evaluate the benefits of suppliers compared to the alternatives. Our measure concerned absolute level of benefits in areas such as personalization of service and loyalty rewards. Our findings lend support to the positive relationship between relationship benefits and commitment. On the other hand, our hypothesized positive effect of relationship termination costs on relationship commitment is not supported. This is in contrast to Morgan and Hunt (1994), who concluded that relationship termination cost increased relationship commitment. One possible reason for this is our conceptualisation of termination costs not just as economic cost but psychic cost as well. Another explanation of this result is that our conceptualisation of commitment is more of the affective type, as opposed to normative or continuance type according to the three-component model of commitment (Allen and Meyer, 1990). Relationship termination cost would normally increase continuance commitment, which is not included in our commitment scale. A third possibility as suggested by the literature regarding online loyalty is that relationship termination costs may simply be substantially lower in the online environment for most lesser-known websites with competition only a mouse-click away (Danaher et al., 2003).

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Customers’ behavioural intentions Both trust and commitment have a significant influence on customers’ behavioural intentions. A customer who trusts an online retailer shall give positive recommendations to others. Hence, positive relationship is found to exist between trust, commitment and word of mouth. A trusting customer will always consider to buy from the website. Hence, trust and commitment have significant positive influence on the purchase intentions of the customer. Higher trust and commitment also promote continued interaction between the online retailer and the buyer. Chircu et al. (2000) also found that trust has a direct positive and significant effect on customers’ online behavioural intention, thus fostering initial and repeat purchase, continued interaction and encouraging word-of-mouth recommendation (Rutter, 2000). Contributions, limitations, implications and conclusion The contributions of this study in the discipline of relationship marketing in the online retailing world are manifold. First, we demonstrate that an extended KMV model of the commitment-trust theory of Morgan and Hunt (1994) explains perfectly well the role of electronic trust in online retailing. Second, taking a lead from the limitations of Morgan and Hunt’s (1994) study, we developed different sets of measures for the antecedents and consequences of trust and commitment. The measures were developed based on extensive pre-tests with online retail companies and their users, which helped us to check the face validity of the scales. The measure for relationship benefits as proposed by Morgan and Hunt (1994) was modified to include personalization of service and loyalty rewards. Morgan and Hunt (1994) measured relationship benefit using a comparative measure between the major and alternate suppliers. We found that an absolute measure works better, as satisfied customers are unwilling to switch to alternative retailers for short-term benefits. Third, since none of the three antecedents of Morgan and Hunt (1994) – i.e. shared value, communication, and opportunistic behaviour – directly addresses privacy and security, adding them to our enhanced model helped to explain trust and commitment better in the online retailing context. We found both privacy and security to have significant impacts on trust and commitment. Fourth, our study confirms that trust significantly affects customers’ intention to engage in online retail transaction. The research also throws new light on the impact of relationship benefits and termination costs on commitment. Finally, we demonstrate the superiority of our proposed model when compared to an alternative base model. Apart from the re-examination of commitment-trust theory in the online retail context, our study attempts to make some other fundamental contributions in understanding online consumer behaviour. Consumer trust plays a key role in success of any retail business. We find that generating confidence in websites through endorsement by celebrities and trust in technological features has significant impact in building consumer trust towards a website. Developing reputation of the online retail brand acts as assurance to the customers (Jarvenpaa et al., 1999; Stratford, 1999). The best way to create customer confidence is through third party endorsement. This is more significant if the third party is a peer consumer (Li et al., 2001). This has immense implications for commercial retail website design and long-term internet retailing strategies.

Privacy is found to be the most important determinant of trust. Co-operative interaction between the customer and the online retailer (Li et al., 2001; Novak et al., 1999), and use of privacy programmes (Li et al., 2001) can improve the trustworthiness of the website. A consumer visiting a website will expect clear guidelines on consumer privacy on non-disclosure of private information and receiving unsolicited e-mails. Customers are more willing to provide information and make purchases online with higher perceived security (Ackerman et al., 1999). While credit card brands and web-based seals of approval provide security, it has been found that web-based security seals such as the Better Business Bureau, Verisign, and TRUSTe, which are recognised by customers, are more effective than credit card logos (Jarvenpaa et al., 1999; Stratford, 1999). Security perceptions can be enhanced through explicitly mentioning the use of encryption (Stratford, 1999). Guarantee of online transactions by major financial institutions or vendors increases customers’ trust (Rutter, 2000), which encourages them to engage in online information search and purchase. Our study showed communication between the online retailer and its users is a significant determinant of consumer trust. A greater number of links with other established websites and the presence of a virtual advisor (Sultan et al., 1999; Jarvenpaa et al., 1999) can improve communication and reinforce consumer trust. In addition, integrating human assistants into web systems is a way to provide efficient user support and increase online customers’ trust in a retailer (Aberg and Shahmehri, 2001). Virtual communities of online retail customers are also valuable resources for promoting quality of response through providing reviews, hints, tips and buying advice (Rutter, 2000). Through virtual communities, there can be interaction among the members and more importantly, trust is heavily linked to the development, fostering and maintenance of online community relationships. Facilitating flow in online customers to a site through combination of goal orientated challenge, feedback, and interaction with other online customers in the community encourages the development of trust. Role of online community is emphasized in Bart et al. (2005). Finally, as the studies conducted by Dutta and Segev (1999) show, enhancing, developing and maintaining customer relationships remains a priority for all retailers online. Thus, our research reinforces the importance of trust as a key driver to developing online customer relationships. Like any other study, this study is also not without its limitations. Customer variables such as knowledge, expertise, familiarity, satisfaction, and technology receptivity, which may affect trust, have not been included in this study. Trust is likely to increase with greater “know-how” regarding online searching, shopping, matching, determining product quality, and monitoring the fulfillment of transactions (Yoon, 2002). Future studies can compare the effects of website design variables with such customer personal variables on trust formation. The nature of the transacted product is acknowledged as an important variable. It is likely that customers’ trust-related cognition and behaviour are different depending on the type of goods: price, commodity status, risk involved, etc. Our research has focused more at the level of the online retailer’s website rather than individual products. It is possible that customers would develop different levels of trust when transacting for different products on the same website (Bart et al., 2005). This remains an area that only further empirical work can confirm or disconfirm.

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Another limitation is the cross-sectional research design employed. In any model in which causality is suggested, longitudinal studies provide for stronger inferences (Morgan and Hunt, 1994). Thus, the model tested in this paper can subsequently be tested in a longitudinal design. Also, the study can be replicated in other countries and contexts for greater generalizability. In conclusion, we find that the commitment-trust theory of relationship marketing can be applied successfully in the online retailing context, with few enhancements specific to the context like online privacy and security. We demonstrate how trust can be developed through creating perceptions of shared values, privacy, security, and communication in online retailing. The behavioural intentions of online retail customers depend on perceived trust and commitment. The issue of trust is therefore increasingly recognized as a critical success factor in the emerging retail “marketspace”. References Aberg, J. and Shahmehri, N. (2001), “An empirical study of human web assistants: implications for user support in web information systems”, Proceedings of the SIGCHI Conference on Human Factors in Computing Systems, Seattle, WA, 31 March-5 April. Achrol, R. (1991), “Evolution of the marketing organization: new forms for turbulent environments”, Journal of Marketing, Vol. 55 No. 4, pp. 77-93. Ackerman, M.S., Cranor, L.F. and Reagle, J. (1999), “Beyond concern: understanding net users’ attitudes about online privacy”, working paper, AT&T Labs-Research, Shannon Laboratory, Florham Park, NJ. Allen, N.J. and Meyer, J.P. (1990), “The measurement and antecedents of affective, continuance and normative commitment”, Journal of Occupational Psychology, Vol. 63 No. 1, pp. 1-18. Anderson, J.C. and Narus, J.A. (1990), “A model of distributor firm and manufacturer firm working partnerships”, Journal of Marketing, Vol. 54 No. 1, pp. 42-58. Ba, S. (2001), “Establishing online trust through a community responsibility system”, Decision Support Systems, Vol. 31 No. 3, pp. 323-36. Bailey, J.P. and Bakos, Y. (1997), “An exploratory study of the emerging role of electronic intermediaries”, International Journal of Electronic Commerce, Vol. 1 No. 3, pp. 7-20. Balto, D. (2000), “Emerging antitrust issues in electronic commerce”, Journal of Public Policy and Marketing, Vol. 19 No. 2, pp. 277-86. Baron, R.M. and Kenny, D.A. (1986), “The moderator-mediator variable distinction in social psychological research: conceptual, strategic, and statistical considerations”, Journal of Personality and Social Psychology, Vol. 51 No. 6, pp. 1173-82. Bart, Y., Shankar, V., Sultan, F. and Urban, G.L. (2005), “Are the drivers and role of online trust the same for all web sites and consumers? A large scale exploratory empirical study”, Journal of Marketing, Vol. 69 No. 4, pp. 133-52. Benassi, P. (1999), “TRUSTe: an online privacy seal program”, Communications of the ACM, Vol. 42 No. 2, pp. 56-9. Bentler, P.M. (1990), “Comparative fit indexes in structural models”, Psychological Bulletin, Vol. 107, pp. 238-46. Berman, B. and Evans, J.R. (2004), Retail Management: A Strategic Approach, 9th ed., Prentice-Hall, Englewood Cliffs, NJ.

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Novak, T.P., Hoffman, D.L. and Peralta, M. (1999), “Building consumer trust in online environments: the case for information privacy”, Communications of the ACM, Vol. 40 No. 4, pp. 80-5. Novak, T.P., Hoffman, D.L. and Yung, Y.-F. (2000), “Measuring the customer experience in online environments: a structural modeling approach”, Marketing Science, Vol. 19 No. 1, pp. 22-42. Nunnally, J.C. (1978), Psychometric Theory, 2nd ed., McGraw-Hill, New York, NY. Pavlou, P.A. and Chellappa, R. (2001), “The role of perceived privacy and perceived security in the development of trust in electronic commerce”, working paper, Marshall School of Business, University of Southern California, Los Angeles, CA. Rousseau, D., Sitkin, S., Burt, R. and Camerer, R. (1998), “Not so different after all: a cross discipline view of trust”, Academy of Management Review, Vol. 23 No. 3, pp. 393-404. Rutter, J. (2000), “From the sociology of trust towards a sociology of ‘e-trust’”, working paper, ESRC Centre for Research on Innovation and Competition (CRIC), The University of Manchester, Manchester. Silverman, G. (1997), “How to harness the awesome power of word-of-mouth”, Direct Marketing, November, pp. 32-7. Sobel, M.E. (1982), “Asymptotic confidence intervals for indirect effects in structural equation models”, in Leinhart, S. (Ed.), Sociological Methodology, Jossey-Bass, San Francisco, CA, pp. 290-312. Spekman, R.E. (1988), “Strategic supplier selection: understanding long-term buyer relationships”, Business Horizons, July/August, pp. 75-81. Stratford, T. (1999), “Etrust: building trust online”, Journal on Integrated Communications, Vol. 10. Sultan, F., Qualls, W. and Urban, G.L. (1999), “Design and evaluations of a true based advisor on the internet”, working paper, Northeastern University, Boston, MA. Swaminathan, V., Lepkowska-White, E. and Rao, B.P. (1999), “Browsers or buyers in cyberspace? An investigation of factors influencing electronic exchange”, Journal of Computer-mediated Communication, Vol. 5 No. 2. Sweeney, J.C., Soutar, G. and Johnson, L.W. (1999), “The role of perceived risk in the quality-value relationship: a study in a retail environment”, Journal of Retailing, Vol. 75 No. 1, pp. 77-105. Thorelli, H.B. (1986), “Networks: between markets and hierarchies”, Strategic Management Journal, Vol. 7, pp. 37-51. Warrington, T.B., Abgrab, N.J. and Caldwell, H.M. (2000), “Building trust to develop competitive advantage in e-business relationships”, Competitiveness Review, Vol. 10 No. 2, pp. 160-8. Williamson, O.E. (1975), Markets and Hierarchies, Analysis and Antitrust Implications, The Free Press, New York, NY. Yoon, S.-J. (2002), “The antecedents and consequences of trust in online-purchase decisions”, Journal of Interactive Marketing, Vol. 16 No. 2, pp. 47-63. About the authors Avinandan Mukherjee is Professor of Marketing at the School of Business at Montclair State University, New Jersey, USA. He is also the Editor-in-Chief of the International Journal of Pharmaceutical and Healthcare Marketing. Before joining Montclair State, Dr Mukherjee taught at Penn State University (USA), the University of Bradford (UK) and Nanyang Technological University (Singapore). Dr Mukherjee’s research interests include digital marketing, services marketing, and pharmaceutical and healthcare marketing. He has authored about 50 articles in refereed journals, conference proceedings, and edited books. His research has appeared in Journal

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of Retailing, Service Industries Journal, Communications of the ACM, Journal of the Operational Research Society, Journal of Services Marketing, Journal of Marketing Management, International Journal of Advertising, International Journal of Bank Marketing, etc. Dr Mukherjee has been a guest editor for European Journal of Marketing, an editorial board member of the Asia-Pacific Journal of Marketing and Logistics, and an ad hoc reviewer for a variety of journals. Avinandan Mukherjee is the corresponding author and can be contacted at: mukherjeeav@ mail.montclair.edu Prithwiraj Nath is a Lecturer in Marketing at the University of Nottingham Business School, UK. His research area includes services marketing, marketing-operations interface, marketing performance measurement, impact of marketing on the firm financials, marketing performance measurement and benchmarking, marketing decision models, and e-logistics. He specializes in the application of operational research tools to solve marketing problems. His research has appeared in several top-rated marketing and operations journals such as Industrial Marketing Management, Journal of Services Marketing, International Journal of Bank Marketing, and Journal of the Operational Research Society. He is a member of the editorial board of Industrial Marketing Management and a reviewer for several other marketing journals.

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Research on trust: a bibliography and brief bibliometric analysis of the special issue submissions David C. Arnott

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Warwick Business School, University of Warwick, Coventry, UK Abstract Purpose – The primary purpose of this bibliography is to provide a compilation of trust-related articles from the disparate fields in which trust has been explored (from psychology to sociology and information systems to marketing. Years in its compilation and (still incomplete), it provides a listing that is not easily obtained even with the search capability of the internet and electronic library catalogues. Its secondary purpose is to highlight which articles are used most by marketing-related trust researchers both in general and within the submissions to the special issue. Design/methodology/approach – The bibliography was compiled via search and analysis of databases, reference lists, bibliographies, internet searches, library catalogues, university web pages, researchers’ curricula vitae (inter alia) for conference papers, journal articles, and books that use trust as a key concept within the work. Findings – The paper finds that there is a plethora of material on trust, but spread across several thousand sources. No single comprehensive collection exists and the need for such a compilation is of value to researchers. Research limitations/implications – The paper is an invaluable source of references on trust from across a wide range of academic disciplines. Originality/value – The main contribution of the paper is the cross-disciplinary nature of the compilation of reference materials. Keywords Trust, Bibliographies Paper type Literature review

Introduction The function of this bibliography is two-fold: (1) to provide a starting point for researchers new to the area of trust in a business and marketing context; and (2) to gather together a listing of useful materials from the rather disparate sources of research on trust. As the number of items listed in this bibliography attests, there is no shortage of research in the area. However, as will become obvious those sources are scattered across a number of disciplines (sociology, psychology, ethics, politics, information systems, organizational behavior, strategy and marketing) with marketing being relatively poorly represented. As modern researchers increasingly rely on subject-specific databases, many of the articles listed here could be overlooked in an initial search of marketing, and the simple search term “trust” throws up innumerable irrelevant articles (e.g. on finance, hospitals, pharmaceuticals, etc.). Hence, a cross-disciplinary collection of sources on trust was deemed a useful addendum to this special issue.

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The compilation does not claim to be definitive (space precludes it and a fuller and regularly updated listing can be located on the lead editor’s home page via www.wbs. ac.uk), but it has been developed over several years and every effort has been made to verify the accuracy of its contents. It should be noted that only items with a direct bearing on trust as a concept are included. The list steps outside the marketing discipline because most researchers into trust in a marketing context draw on such materials. Space decrees that important but field-specific, trust-related references are excluded (e.g. those on channel control or channel behaviour from the business-to-business field, or inter-departmental relationships or inter-group conflict from the organization behavior field, or branding, loyalty or CRM from the marketing field). There are also numerous articles where trust is considered but not as a core concept, and these too are excluded. For those interested in field-specific issues with a bearing on trust the reference listings in the papers in this special issue form an excellent starting point. The articles in the database have been compiled from a range of sources. Inclusion of an item is based on citation frequency, direct reference to the concept of trust in the title or abstract of the work, or on the use of trust as a key construct within the paper. Sources include peer-reviewed journal articles, books and anthologies (some with partial contents), and conference and working papers. There are a few online resources, but these have been kept to a minimum. As with any reference source some articles are more frequently used than others, so, by way of a guide, the following presents a simple analysis of a random sample of 22 of the 55 papers submitted to this special issue and illustrates the dominance of certain papers. These 22 papers made reference to 336 unique trust related citations with an average referencing rate of just over 30, although the sample was slightly biased by a literature review (not accepted for publication). Of the 22 papers analysed: . 18 made reference to Morgan and Hunt (1994); . 13 made reference to Doney and Cannon (1997); . 11 made reference to Mayer et al. (1995); . ten made reference to each of Moorman et al. (1992, 1993); . nine made reference to Zucker (1986); . eight made reference to Dwyer et al. (1987); . seven made reference to Ganesan and Hess (1997); . six made reference to Lewis and Weigert (1985) and Sirdeshmukh et al. (2002); and . five made reference to Barber (1983) and Selnes (1998). The remainder of the 336 references received four citations or fewer, with the vast majority (234 of the 336, some 70 per cent) receiving just a single citation. The number of trust citations amongst the papers accepted for the special issue averaged 25 and ranged from seven to 48, with trust-to-total citation ratios ranging from 0.14 to 0.49. Making allowances for the small sample used, these figures are comparable to analyses of the leading journal citations in the BIDS and Google Scholar databases in which the Moorman et al. (1993), Morgan and Hunt (1994) and Dwyer et al. (1987) papers achieve the highest citation ratings in trust-related work.

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